ServiceNow (NOW): Rethinking Valuation After a Sharp Pullback in Share Price

ServiceNow (NOW) shares have been under pressure lately, slipping over the past week and month. This has investors asking whether the recent pullback reflects changing fundamentals or simply sentiment catching up with earlier gains.

See our latest analysis for ServiceNow.

Zooming out, the 1 year total shareholder return of minus 29.72 percent and a 90 day share price return of minus 20.21 percent suggest momentum has clearly faded, even though the 3 year total shareholder return of 100.83 percent still points to strong long term value creation.

If this reset in sentiment has you rethinking your tech exposure, it could be a good moment to scan other high growth tech and AI stocks that might fit your strategy better.

With shares down sharply despite double digit revenue and earnings growth, and the stock trading well below consensus price targets, investors now face a key question: Is ServiceNow a contrarian buy, or is future growth already priced in?

Most Popular Narrative: 86.7% Undervalued

Compared with ServiceNow’s last close at $153.38, the most followed narrative pegs fair value far higher, implying a steep disconnect between price and expectations.

In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $20.3 billion, earnings will come to $3.3 billion, and it would be trading on a PE ratio of 93.7x, assuming you use a discount rate of 8.4%.

Read the complete narrative.

Want to know how revenue, margins and a sky high future earnings multiple all combine to justify that appraisal? The surprising growth runway behind this projection is anything but ordinary. Curious which assumptions turn today’s selloff into tomorrow’s upside story? Read on to see what is driving that fair value.

Result: Fair Value of $1,154.54 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, that upside assumes flawless execution, and setbacks in AI integration or tightening US federal tech budgets could quickly undercut today’s bullish valuation case.

Find out about the key risks to this ServiceNow narrative.

Another View: Valuation Signals Are Split

On earnings, the picture looks very different. ServiceNow trades on a P/E of 91.9 times versus about 31.2 times for the wider US software sector and a peer average of 50.3 times, while our fair ratio sits near 46.1 times. That kind of gap can close quickly, but it is unclear which way it will move first.

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own ServiceNow Narrative

If you are unconvinced by this view, or prefer to examine the numbers yourself, you can build a complete narrative in minutes: Do it your way.

A good starting point is our analysis highlighting 4 key rewards investors are optimistic about regarding ServiceNow.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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