ServiceNow is forming a base and nearing a buy point. The worst may be over for the cloud computing company, which is Monday's IBD 50 Stocks To Watch pick.
ServiceNow holds top-notch fundamentals and is in the IBD SwingTrader portfolio.
Its cloud-based digital Now Platform provides workflow systems to clients' IT teams, employees, customers and creators. The system also can detect service disruptions.
ServiceNow serves over 7,700 global customers — including 85% of the elite Fortune 500 — in education, energy, financial services, government, health care and other industries.
In late March, the company announced that car-racing organization NASCAR will add the Employee Workflows system to enhance employee productivity from any location, beginning in May.
NOW holds the coveted top spot out of 132 stocks in the Computer Software-Enterprise industry group. The group is ranked a midway 96th out of 197 IBD industry groups.
Cloud Computing Stock Nears A Buy Point
NOW stock is building the right side of a cup base with 494.72 buy point, according to MarketSmith pattern recognition.
The cloud computing stock rose over 1% following a better-than-expected Q4 earnings report Jan. 25.
After peaking on Feb. 2, the stock started a descent to the bottom of the base in mid-March, breaking below the 50-day moving average.
NOW wavered across the line before reclaiming it on March 31. It gained 5.7% that day after encouraging inflation data and a decline in Treasury yields lifted tech and growth stocks.
Shares popped 2.5% on Tuesday in heavy volume after Baird upgraded the stock to outperform from neutral and raised its price target to 548 from 475.
The cloud computing stock is about 12% off its 52-week high of 534.13, but well off its all-time high of 598.37 from Feb. 8, 2021.
Shares gained about 20% in the first quarter, outpacing the roughly 7% gain in the S&P 500.
Enviable IBD Ratings And Accolades
ServiceNow earns the highest possible 99 EPS Rating and Composite Rating.
The Relative Strength Rating is on the move and rose to 84 from 81 on Wednesday, meaning NOW outperformed 84% of stocks in the IBD database in the last 12 months.
ServiceNow holds an "A" IBD SMR Rating. The IBD proprietary rating combines three gauges: sales growth, profit margins and return on equity (ROE). The rating goes from A to E, with A being best.
The company was ranked one of Fortune's World's Most Admired Companies of 2022.
More Earnings Growth Expected
The cloud computing company reported an impressive 56% EPS growth in Q4, up from 26% the previous quarter. EPS thinned out to 14% in Q1 and Q2 of last year.
FactSet estimates are for $2.03 in first-quarter EPS, representing over 17% growth over the year-ago period.
Longer-term estimates look favorable. The full-year $9.20 EPS estimate exceeds the $7.59 posted in 2022 by 21%, with growth expected to climb to $11.37 per share in 2024.
ServiceNow holds a 28% three-year EPS growth according to the IBD Stock Checkup.
Quarterly sales growth ranged from 20% to 24% in the last three quarters. Subscription revenue grew 22% over the prior year's quarter with a high 98% renewal rate, helping ensure future revenue.
FactSet estimates Q1 sales of $2.085 billion, or 21% growth.
Full-year sales of $8.864 billion are forecast, up from $7.245 billion in 2022, a 22% growth rate. For 2024, sales are forecast at $10.802 billion.
Service Now reports Q1 earnings on April 26. The company beat Q4 EPS estimates by almost 13%, adding to its history of outperforming projections.
Mutual funds own 53% of shares, with 3,183 funds owning shares in March, and held relatively steady in the last couple of quarters.
Follow Kimberley Koenig for more stock news on Twitter @IBD_KKoenig.
