Not every company is able to step up to the plate to take on behemoths such as Google parent Alphabet. But enterprise software and cloud computing leader ServiceNow has proved to be a worthy opponent. Today's IBD 50 Stocks To Watch pick boasts a 51% gain so far this year, nearly matching GOOGL's 56% gain.
And more gains could be in the offing as the growth stock is in a cup base with a buy point of 614.36. The relative strength line is near a 52-week high, as shown by IBD MarketSmith chart tools. NOW shares fell on earnings on July 27 but are now rising as they build the right side of the cup.
ServiceNow stock has a long history of strong performance. The company went public in June 2012 on the New York Stock Exchange. Shares popped on the first day of trading at an initial price of $18 and hit an all-time high of 707.60 in November 2021. That represents a whopping 3,831% gain over 11 years.
After a lengthy downtrend to a bottom in October 2022, the stock is back in fine form. ServiceNow has a perfect 99 scores for its Composite and EPS Ratings. The Relative Strength Rating is 92.
Sales and earnings growth has been steady over the past seven quarters. Second-quarter sales grew 23% to $2.2 billion, while earnings per share of $2.37 showed a 46% increase. Subscription revenue grew 25%.
For the full year, the company expects subscription revenue growth of 24%, with gross profit from subscriptions swelling 84%.
CEO Bill McDermott was widely reported to have set revenue expectations at $16 billion by 2026. That would be up from $7.26 billion in 2022.
Growth Stock Ventures Into AI
ServiceNow offers workflow automation and other enterprise software products to the health care, education, financial services and other industries. The cloud computing company also provides information-technology service 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. The NOW platform for workflow automation is integrated with Microsoft Azure's OpenAI Service. The Generative AI Controller allows companies to use AI features such as answering questions and generating content, while the Now Assist for Search provides natural-language answers to queries within the customer's secure environment.
Mutual funds own 51% of ServiceNow's outstanding shares. This is also a stock under accumulation as more funds have been buying shares over the past eight quarters, giving NOW an Accumulation/Distribution Rating of B-. Franklin Growth Fund(FKGRX) and Harbor Disruptive Innovation Fund(HAMGX) hold shares of ServiceNow stock.
Exchange traded funds hold the growth stock as well. The iShares Expanded Tech-Software Sector ETF and the Franklin Exponential Data ETF hold shares of NOW.
NOW stock ranks No. 1 in the enterprise software group, which ranks No. 41 among IBD's 197 industry groups. ServiceNow's rivals include Alphabet and newer plays Snowflake and Workday.
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