High Margins, 44% Discount: Buy ServiceNow Stock Now

ServiceNow (NOW) stock might be a good buy now. Why? Because you get high margins – reflective of pricing power and cash generation capacity – for a discounted price. Companies like this generate consistent, predictable profits and cash flows, which reduce risk and allow capital to be reinvested. The market tends to reward that.

What Is Happening With NOW

NOW may be down -7.4% so far this year, but the silver lining is that it is now 44% cheaper based on its P/S (Price-to-Sales) ratio compared to 1 year ago.

The stock may not reflect it yet, but here is what’s going well for the company. ServiceNow’s Q3 2025 saw 103 deals over $1 million net new ACV, reflecting strong demand, coupled with a 97-98% customer renewal rate. Expanding platform adoption beyond IT into areas like HR and supply chain, alongside substantial uptake of AI products like Now Assist, which are on track to exceed $0.5 billion in ACV for 2025, indicates growing pricing leverage. The strategic move towards a consumption-based model for AI solutions further underscores future monetization and cash generation potential.

NOW Has Strong Fundamentals

• Recent Profitability: Nearly 38.2% operating cash flow margin and 13.9% operating margin LTM.
• Long-Term Profitability: About 37.9% operating cash flow margin and 11.2% operating margin last 3-year average.
• Revenue Growth: ServiceNow saw growth of 21.1% LTM and 22.3% last 3-year average, but this is not a growth story
• Available At Discount: At P/S multiple of 11.6, NOW stock is available at a 44% discount vs 1 year ago.

Below is a quick comparison of NOW fundamentals with S&P medians.

*LTM: Last Twelve Months

Don’t Expect A Slam Dunk, Though

While NOW stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. This stock fell 27% during the 2018 correction, 30% in the Covid pandemic sell-off, and over 50% in the inflation shock. Even with solid fundamentals, these dips show it’s not immune when the market turns sour. Downturns hit hard, and such pullbacks are part of the risk picture. But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read NOW Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

If you want more details, read Buy or Sell NOW Stock.

How We Arrived At NOW Stock

NOW piqued our interest because it meets the following criteria:

1. Greater than $10 Bil in market cap
2. High CFO (cash flow from operations) margins or operating margins
3. Meaningfully declined in valuation over the past 1 year

But if NOW doesn’t look good enough to you, here are other stocks that also check all these boxes:

1. Visa (V)
2. T-Mobile US (TMUS)
3. Adobe (ADBE)

Notably, a portfolio that was built starting 12/31/2016 with stocks that fulfil the criteria above would have performed as follows:

• Average 12-month forward returns of nearly 19%
• 12-month win rate (percentage of picks returning positive) of about 72%

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Individual picks are volatile but diversified assets offset each other. A multi asset portfolio helps you stay the course capture upside and reduce downside.

The asset allocation framework of Trefis’ Boston-based, wealth management partner yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Our partner’ strategy now includes Trefis High Quality Portfolio, which has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices