Not every company is capable of stepping up to the plate to take on behemoths like parent Google the alphabet (GOOGL). But the enterprise software and cloud computing leader service now (now) proved to be a worthy opponent. Today’s IBD 50 Stock to Watch pick has gained 51% so far this year, nearly matching GOOGL’s 56% gain.
And the bullish stock is in a cup base with a buy point of 614.36 and further gains can be made. As indicated by the IBD MarketSmith chart tools, the relative strength line is near a 52-week high. Now on July 27 the shares fell in earnings but are now rising as the right side of the cup is formed.
ServiceNow stock has a long history of strong performance. The company went public on the New York Stock Exchange in June 2012. Shares popped at an opening price of $18 on the first day of trading and hit an all-time high of 707.60 in November 2021. That represents a whopping 3,831% growth in 11 years.
After a long downtrend to the bottom in October 2022, the stock is back in good form. ServiceNow has a perfect 99 score for its composite and EPS ratings. The relative strength rating is 92.
Sales and earnings growth have been steady over the past seven quarters. Second-quarter sales rose 23% to $2.2 billion, while earnings per share of $2.37 represented a 46% increase. Subscription revenue increased by 25%.
For the full year, the company expects subscription revenue to grow 24%, with gross profit from subscriptions growing 84%.
CEO Bill McDermott expects $16 billion in revenue by 2026. It will increase from $7.26 billion in 2022.
Growth of Stock Ventures in AI
ServiceNow offers workflow automation and other enterprise software products to healthcare, education, financial services and other industries. The cloud computing company also provides information-technology services and operations management products. AppEngine offers a low-code platform on which developers can build custom applications.
During the quarter, ServiceNow introduced several new initiatives to capture the potential of artificial intelligence through the ServiceNow Generative AI Controller and Now Assist for Search. Integrates with the NOW platform for workflow automation Microsoft (MSFT) Azure’s OpenAI service. The Generative AI controller allows companies to use AI features such as answering questions and creating content, while Now Assist for Search provides natural language answers to customers’ questions in a secure environment.
Mutual funds hold 51% of ServiceNow’s outstanding shares. It’s also an under-accumulated stock as more funds have been buying shares over the past eight quarters, which now carries an accumulation/distribution rating of B-. Franklin Growth Fund (FKGRX) and Harbor Disruptive Innovation Fund (HAMGX) own shares of ServiceNow stock.
Exchange traded funds also have growth stocks. The iShares Expanded Tech-Software Sector ETF ( IGV ) and the Franklin Exponential Data ETF ( XDAT ) currently hold shares.
Now’s stock is No. 1 in the enterprise software group, ranking 41st among IBD’s 197 industry groups. ServiceNow’s competitors include the alphabet (GOOGL) and new plays Snowflake (SNOW) and work day (WDAY).
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