ServiceNow
Software as an Investment?
My banker buddy, who hasn’t touched a lick of shares the entire move, is now buying ServiceNow like it’s going out of style.
Since my foray into taking unsolicited stock advice from friends who didn’t do well. I listen, but verify it from the way I look at things, in my humble manner.
So on this beautiful Sunday, after speaking to my parents (did you call them?), here are some thoughts.
First, call your parents. Let's just say a miracle happened with my in-laws today, and nothing else really matters.
Now back to some back-of-the-napkin thinking:
During any bull market, that is a period of time where amazing gains for those who risked a few dollars, some areas don’t do well.
Like software stocks that have crashed 20-60%
So if you hear people talking about the 2000 tech crash, well, it already happened to the winners of that era! Just not the indexes.
So that means some investors have already entered bear-market territory.
And maybe institutions that have the big money miscalculated and threw the baby with the bathwater.
So who am I not to have a quick peek?
Besides stock charts that may show some pause in the sell-off
Here are three other things to look at:
Is it trading higher/lower than the popular indexes like Sp500 or Nasdaq100
What’s their growth picture looking like? Let's use the PEG ratio.
Compelling story
Looking at #1, I didn’t realize that it is not part of the Nasdaq-100 because it trades on the NYSE. That alone may reduce demand.
Look at the advance/decline of the Nasdaq 100 and notice its current highs, but not the SP500 (not shown)
So what’s its growth? PEG ratio… which is simply the Price to Earnings of the stock divided by its expected growth rate.
P/E is static. And the growth rate is yours, management’s, or some analysts’ opinion of their bright future.
Back-of-the-napkin math using a 60 P/E and 15% annual growth says that growth never ends.
The math is fine if the story holds beyond the 8-year window. If growth decelerates to 10% in year 9, the multiple collapses and the return are punishing regardless of what happened in years 1–8.
So, at conservative metrics, don’t touch.
This is where some “color” on the growth could help, and where social media and the old-guard newspapers may shed some light.
WSJ interviews the CEO who most definitely wears his sunglasses at night.
https://www.wsj.com/tech/ai/servicenow-ceo-builds-new-business-model-around-ai-3c103d86
Insiders and the President are buying
(Don’t ask me how the President has time to buy stock, no idea)
Barrons had a nice technical picture on the company
And this account shows some very positive growth picture
I saw a 60 p/e, but maybe the forward p/e is 21.
If so, it’s really cheap like this guy is saying.
Since this company is huge and vast, and on “sale,” this is a company that most definitely will participate in the rally once investors begin realizing that AI won’t replace software.
Now if that doesn’t occur, I think the market will price it in to reliable earnings and not growth. That’s why the uptrend is broken.
Loss of pricing power does this, but if things are revaluated as my banker friend assumes, it’s going to do very well.
Have an opinion?
Share it in chat, love to hear.
Make it a wonderful afternoon
Eric