SERVICENOW INC (NYSE:NOW) – A Strong Contender for Quality Investors

SERVICENOW INC (NYSE:NOW) stands out as a compelling candidate for quality investors, based on our Caviar Cruise screening methodology. The company demonstrates strong revenue and profit growth, high returns on invested capital, and efficient cash flow conversion—key traits sought by long-term investors.

Why SERVICENOW Fits the Quality Investing Criteria

• Revenue and EBIT Growth: Over the past five years, NOW has delivered an impressive 18% annual revenue growth, while EBIT growth has surged at a 100% CAGR. This indicates not only top-line expansion but also significant operational efficiency improvements.
• High ROIC: The company’s Return on Invested Capital (excluding cash and goodwill) stands at 26.5%, well above our 15% threshold. This suggests NOW effectively deploys capital to generate profits.
• Strong Profit Quality: With a five-year average profit quality of 597%, NOW converts net income into free cash flow at an exceptional rate, reinforcing financial health.
• Low Debt Burden: A Debt-to-Free Cash Flow ratio of 0.41 means NOW could theoretically pay off all its debt in less than six months using current cash flow—a sign of financial resilience.

Fundamental Analysis Summary

Our fundamental report assigns NOW a solid rating of 6 out of 10, with standout scores in profitability (8/10) and health (7/10). Key strengths include:

• Profitability: High margins (Operating Margin of 12.9%, Gross Margin of 78.9%) and strong returns (ROE of 15.2%) place NOW ahead of most software industry peers.
• Growth: Revenue and earnings have grown at double-digit rates, with analysts forecasting continued expansion.
• Valuation: While NOW trades at a premium (P/E of 70), its growth trajectory and profitability may justify the higher multiple for quality-focused investors.

For more stocks meeting similar criteria, explore our Caviar Cruise screener.

Disclaimer

This is not investing advice! The article highlights observations at the time of writing, but always conduct your own analysis before making investment decisions.