Is ServiceNow Stock Really Expensive?
For questions about this article or underlying research, email help@trefis.com.
ServiceNow (NOW) stock trades at 34.2 times its adjusted earnings over the last four fiscal quarters. This profit figure adds after-tax stock-based compensation to normalized net income. That is a high price for a single year of profit, but the valuation looks different when measured against the earnings expected over the next two fiscal years. So are you overpaying for ServiceNow stock at $106.01 a share?
What ServiceNow Stock Costs On Forecast Profit
Not if the forecast arrives. At that price, ServiceNow costs 26.6 times the consensus profit forecast for fiscal 2026. That multiple drops to 21.8 times on the fiscal 2027 forecast, beside the 34.2 times investors pay for the last four quarters.
The trailing figure prices profit already earned, while the forward figures price profit still to come. The two, however, may not count profit the same way. Fiscal 2026 shares three quarters with the trailing period, yet its $4.13 billion forecast profit sits well above the trailing $3.21 billion. The fiscal 2027 forecast also carries uncertainty, with a gap between the highest and lowest earnings-per-share estimates for that year equal to 17.1% of the average estimate.
The Sales And Profit ServiceNow Has To Deliver
Under the consensus forecast, ServiceNow grows sales 18.5% in fiscal 2027. While slower than the 21.8% delivered over the last four fiscal quarters, that pace closely matches what customers have already signed for. Current RPO, representing the revenue customers have contracted for over the next twelve months, is expected to grow 18.5% in fiscal Q4 2026, management said on the fiscal Q3 2026 call. Management also called this measure a good, though imperfect, indicator of fiscal 2027 revenue.
The forecast places a greater demand on profit. Net income is expected to grow 22.0% in fiscal 2027, outpacing sales to yield a slightly wider margin. That is an assumption, however, rather than a result ServiceNow has actually delivered.
Where Could ServiceNow’s Forecast Fall Short?
The forecast could fall short on the profit margin. The consensus forecast models a 25.4% net margin for fiscal 2026, but it does not specify whether it counts reported or adjusted profit. Based on reported profit, ServiceNow’s net margin was 13.2% for fiscal 2025. Furthermore, the company’s highest twelve-month net margin at any quarter-end since fiscal Q4 2016 stands at 20.3%.
Measured on reported figures, the margin is moving the other way. Over its last four fiscal quarters, ServiceNow’s net margin was 9.4%, down from 13.7% a year earlier. During those same four quarters, the company’s $2.32 billion in stock-based compensation exceeded its reported net income of $1.45 billion.
Given the figures, this forecast clearly relies on adjusted metrics rather than reported GAAP profit. Over the last four fiscal quarters, three of which fall in fiscal 2026, reported net income was about a third of the $4.13 billion forecast for the year. Much like the 34.2 times figure, the forecast counts profit ServiceNow has not reported.
If the forecast arrives, the forward multiples offer a fair picture of what you pay for ServiceNow stock. The likeliest shortfall is the margin. On the adjusted profit behind the 34.2 times figure, ServiceNow’s net margin over the last four quarters was about 21%, below the 25.4% forecast. While the two may not count profit the same way, a shortfall would make the stock a riskier bet, priced for profit the company has not earned. ServiceNow is expected to report its next results in January 2027, and its reported net margin is the measure to watch.
Still Holding ServiceNow After The Drop?
Selling a fallen stock can still bring a tax bill if you bought long ago, and holding keeps the risk. A free 30-minute strategy review with our partner advisory firm covers a floor under a large position and a lower-tax unwind.
Spot an error or want more like this? Tell us in 10 seconds.