Is it too late to buy ServiceNow stock?

In the crowded industry of enterprise software companies, Service now (NYSE:NOW) continues to distinguish itself as a leader in workflow automation. ServiceNow’s ability to support efficiency is critical for organizations in times of economic uncertainty and rising labor costs.

Will these improvements continue to translate into returns for investors? As the share price continues to rise, long-term investors should take a closer look at this SaaS stock to see if it still offers them an opportunity.

ServiceNow Status

ServiceNow is a popular choice for companies looking to improve workflow automation. Its software, called the Now platform, sits on a company’s existing IT infrastructure, making it easy to implement.

From there, it helps companies organize processes and automate them when possible. Such software is key to improving efficiency in increasingly complex organizations that are coping with rising labor costs.

In addition, a diverse set of companies use ServiceNow for multiple purposes. Examples include Stellantiswhich uses it to manage its supply chain, human resources and financial operations. The pharmaceutical giant Merck uses technology to streamline IT operations. Such examples speak to the versatility of the software.

What’s more, these successes have made the Now platform a favorite among users. According to GartnerThe company rose to the No. 1 position in several niches, including IT operations, IT services marketplace, and IT asset management. Such achievements demonstrate that ServiceNow has gained a competitive edge over its competitors.

Not surprisingly, it has also built generative AI functionality into its Now platform. This platform, called Now Assist, is a collection of AI-powered features that can support customer service, case management, app development, and more.

Customers appear to be embracing ServiceNow’s capabilities more. Transactions over $1 million increased 26% year over year in Q2, and the number of customers spending over $1 million annually with the company now stands at 1,988.

How did it do financially?

Perhaps the best indicator of its continued success is its financial results for the first half of 2024. During that time, ServiceNow earned $5.2 billion in revenue, up 23% from the same period in 2023. By controlling operating expenses, operating income increased 119% to $572 million during the period.

However, an $832 million tax break in the first half of 2023 gave net income a one-time boost this year. Hence, $609 million in net income for the first two quarters of 2024 fell 49%.

Nevertheless, analysts are forecasting revenue to grow 22% this year and 21% in 2025, meaning revenue growth should remain solid.

In reality, such anomalies apparently did not worry investors, as the company’s shares are up almost 60% over the past 12 months.

This increase has boosted valuations, as the stock’s price-to-sales (P/S) ratio of 19 indicates that the stock isn’t cheap. Still, given that ServiceNow’s average P/S ratio over the past five years has been 17.8, the stock could have room to grow from these levels.

Is it too late to buy ServiceNow stock?

Given the state of the company’s business, ServiceNow’s financial performance, and its valuation, it’s likely not too late for investors to make a purchase.

Undoubtedly, with the P/S ratio above the five-year average, investors should be more cautious about adding shares, as bad news could stall the stock’s growth for some time.

However, ServiceNow seems to be ahead of the curve in many areas of the enterprise software industry. As more and more companies turn to ServiceNow to increase their efficiency, long-term investors should continue to thrive with the company.

Is it worth investing $1,000 in ServiceNow now?

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Will Healy has no position in any stocks mentioned. The Motley Fool has positions in and recommends Merck and ServiceNow. The Motley Fool recommends Gartner and Stellantis. The Motley Fool has a disclosure policy.