Should You Buy ServiceNow Stock Despite Its High Valuation?
ServiceNow stock (NYSE: NOW) fell 11% on Monday following the announcement of its planned $7 billion acquisition of Armis. This news led to an analyst downgrade and spooked investors.
Despite this volatility, we believe the stock is a buy after its recent dip. While NOW’s current price of around $780 appears attractive, its high valuation makes it highly sensitive to adverse events, presenting a tricky buying opportunity.
Our positive outlook stems from a thorough analysis comparing NOW’s current valuation against its recent operating performance and historical financial strength. Our detailed review of key parameters—Growth, Profitability, Financial Stability, and Downturn Resilience—shows that ServiceNow maintains a Very Strong overall operating performance and financial condition.
Not too happy about the volatile nature of NOW stock? The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all three – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
How Does ServiceNow’s Valuation Look vs. The S&P 500?
Going by what you pay per dollar of sales or profit, NOW stock looks expensive compared to the broader market.
- ServiceNow has a price-to-sales (P/S) ratio of 15.2 vs. a figure of 3.2 for the S&P 500
- Additionally, the company’s price-to-free cash flow (P/FCF) ratio is 49.4 compared to 20.7 for S&P 500
- And, it has a price-to-earnings (P/E) ratio of 111.4 vs. the benchmark’s 23.5
How Have ServiceNow’s Revenues Grown Over Recent Years?
ServiceNow’s Revenues have grown considerably over recent years.
- ServiceNow has seen its top line grow at an average rate of 22.3% over the last 3 years (vs. increase of 5.5% for S&P 500)
- Its revenues have grown 21.1% from $10 Bil to $13 Bil in the last 12 months (vs. growth of 6.0% for S&P 500)
- Also, its quarterly revenues grew 21.8% to $3.4 Bil in the most recent quarter from $2.8 Bil a year ago (vs. 7.3% improvement for S&P 500)
How Profitable Is ServiceNow?
ServiceNow’s profit margins are higher than most companies in the Trefis coverage universe.
- ServiceNow’s Operating Income over the last four quarters was $1.8 Bil, which represents a moderate Operating Margin of 13.9% (vs. 18.8% for S&P 500)
- ServiceNow’s Operating Cash Flow (OCF) over this period was $4.8 Bil, pointing to a considerably high OCF Margin of 38.2% (vs. 20.4% for S&P 500)
- For the last four-quarter period, ServiceNow’s Net Income was $1.7 Bil – indicating a moderate Net Income Margin of 13.7% (vs. 13.1% for S&P 500)
Does ServiceNow Look Financially Stable?
ServiceNow’s balance sheet looks very strong.
- ServiceNow’s Debt figure was $2.4 Bil at the end of the most recent quarter, while its market capitalization is $162 Bil (as of 12/16/2025). This implies a very strong Debt-to-Equity Ratio of 1.2% (vs. 21.2% for S&P 500). [Note: A low Debt-to-Equity Ratio is desirable]
- Cash (including cash equivalents) makes up $5.4 Bil of the $22 Bil in Total Assets for ServiceNow. This yields a strong Cash-to-Assets Ratio of 24.8% (vs. 6.9% for S&P 500)
How Resilient Is NOW Stock During A Downturn?
NOW stock has seen an impact that was slightly better than the benchmark S&P 500 index during some of the recent downturns. Worried about the impact of a market crash on NOW stock? Our dashboard How Low Can ServiceNow Stock Really Go? has a detailed analysis of how the stock performed during and after previous market crashes.
Inflation Shock (2022)
- NOW stock fell 51.3% from a high of $701.73 on 4 November 2021 to $341.76 on 14 October 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
- The stock fully recovered to its pre-Crisis peak by 11 December 2023
- Since then, the stock has increased to a high of $1170.39 on 28 January 2025 and currently trades at around $770
Covid Pandemic (2020)
- NOW stock fell 30.2% from a high of $357.72 on 19 February 2020 to $249.57 on 3 April 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
- The stock fully recovered to its pre-Crisis peak by 5 May 2020
Putting All The Pieces Together: What It Means For NOW Stock
In summary, ServiceNow’s performance across the parameters detailed above are as follows:
- Growth: Very Strong
- Profitability: Strong
- Financial Stability: Very Strong
- Downturn Resilience: Moderate
- Overall: Very Strong
Remember, investing in a single stock without comprehensive analysis can be risky. Consider the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.
The Bottom Line
Based on ServiceNow’s fundamental financial and operational strength, the stock remains a solid pick, despite its high valuation. However, this high valuation makes the stock volatile and supports our overall view that NOW is a tricky stock to buy in the short term. We acknowledge that the Armis deal will introduce its own impact, but the underlying company performance is robust.
We recognize potential risks, including a slowing momentum in enterprise cloud spending and economic headwinds/IT budget risks, among other risks, which could derail ServiceNow’s growth trajectory and prove our assessment wrong.
Nevertheless, for investors with a 3-5 year timeline, NOW stock is an attractive buy after its recent dip and is positioned to offer robust returns. This outlook is supported by analyst consensus, which has an average price target of $1,145, implying a solid 50% upside potential from current levels.
Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates