Shareholders of ServiceNow would probably like to forget the past six months even happened. The stock dropped 40.8% and now trades at $101.38. This might have investors contemplating their next move.
Following the drawdown, is this a buying opportunity for NOW? Find out in our full research report, it’s free.
Why Is NOW a Good Business?
Built on a single code base that processes over 4 billion workflow transactions daily, ServiceNow (NYSE:NOW) provides a cloud-based platform that helps organizations automate and digitize workflows across departments, from IT and HR to customer service and security.
1. ARR Surges as Recurring Revenue Flows In
While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.
ServiceNow’s ARR punched in at $13.86 billion in Q4, and over the last four quarters, its year-on-year growth averaged 21%. This performance was impressive and shows that customers are willing to take multi-year bets on the company’s technology. Its growth also makes ServiceNow a more predictable business, a tailwind for its valuation as investors typically prefer businesses with recurring revenue. 
2. Operating Margin Reveals a Well-Run Organization
While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.
ServiceNow has been an efficient company over the last year. It was one of the more profitable businesses in the software sector, boasting an average operating margin of 13.7%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
ServiceNow has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the software sector, averaging an eye-popping 34.9% over the last year.
Final Judgment
These are just a few reasons why we think ServiceNow is a great business. With the recent decline, the stock trades at 6.7× forward price-to-sales (or $101.38 per share). Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More Than ServiceNow
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.