ServiceNow Inc (NOW)

Conclusion

ServiceNow provides cloud-based software for digital workflows, including IT service management, customer service, security operations and HR delivery, sold to large enterprises and public bodies through service providers and resale partners. At 102.76 USD on 9 November 2026, the company has a market capitalisation of 106.7 billion USD and an enterprise value of 110.5 billion USD.

The verdict is undervalued. The P/E of 73.8 compares with a ten-year median of 148.1, a premium of -50.2%, and EV/EBITDA of 32.1 compares with a median of 150.7, a premium of -78.7%. The discounted cash flow gives 84.93 USD per share at a discount rate of 9.79%. The fair value band runs from 148.75 to 223.12 USD with a midpoint of 185.93 USD, a margin of safety of 80.9% at the current price. The reverse DCF implies growth of 18.0% a year, while revenue compounded at 24.1% over five years and free cash flow per share at 26.7%.

What holds the case up is the record of revenue growth, which rose in all 10 of 10 comparable years, the free cash flow conversion of 3.29x on a trailing basis, and the Altman Z-score of 4.28. What could break it is the current ratio of 0.72, the return on invested capital of 9.9% barely above the cost of capital of 9.35%, and stock-based compensation equal to 15.1% of revenue. Analysts have also cut their estimates for next year by 4.1% over ninety days.

Financial health

Financial strength is yellow: the net debt to EBITDA of 1.1x, the interest coverage of 13.7x and the Altman Z-score of 4.28 support the rating, while the current ratio of 0.72 pulls it down. The quick ratio is 0.58 and debt to equity is 0.64. The Altman model was designed for manufacturers, so its zone of safe is only a rough guide for a software company. Insolvency risk: low, about 0.2% by the estimate of the Ohlson model over one to two years, based on 2025 annual figures. The company's own statements show short-term liabilities exceeding current assets, but the debt load is moderate relative to earnings.

Earnings quality

Earnings quality is green. Free cash flow conversion is 3.29x on a trailing basis and 2.69x over five years, and the accrual ratio of -0.16 shows cash earnings running ahead of reported profit. The Piotroski score is 4 out of 9, which is neutral. The Beneish M-score of -2.83 points to an unlikely risk of earnings manipulation. Free cash flow after stock-based compensation is 2.43 billion USD trailing. The share count has grown at 0.67% a year over five years, so there have been no net buybacks. Over the last eight quarters the company beat estimates four times and missed twice, with an average surprise of 0.70%.

Profitability

Profitability is yellow. The operating margin of 9.7% is above its ten-year median of 4.4%, and the net margin of 9.4% is above its median of 4.2%. The gross margin of 73.1% sits below its median of 77.3%. The return on invested capital is 9.9%, against a weighted cost of capital of 9.35%, giving a return on invested capital minus cost of capital of 0.57%, which is neutral. Over five years the median return on invested capital was 11.7%. The return on equity of 11.0% is not inflated by leverage: the DuPont split shows a net margin of 13.2%, an asset turnover of 0.51 and an equity multiplier of 2.01.

Growth

Growth is green. Revenue compounded at 22.4% over three years, 24.1% over five and 29.4% over ten. Revenue grew in all 10 of 10 comparable years. Earnings per share compounded at 73.6% over three years and 70.0% over five. Free cash flow per share compounded at 27.0% over three years, 26.7% over five and 31.2% over ten. Analysts expect earnings per share growth of 21.4% next year, though their estimates have been moving down.

Valuation

Valuation is green. Against their ten-year medians, the P/E of 73.8 compares with 148.1, the price to free cash flow of 22.5 with 62.7, the price to sales of 6.9 with 16.9 and the price to book of 8.1 with 29.9, with premiums of -50.2%, -64.2%, -59.2% and -72.8% respectively. The discounted cash flow value is 84.93 USD per share at a discount rate of 9.79%, with 59.2% of it coming from the terminal value. The reverse DCF implies growth of 18.0%, which is -6.1% against the five-year revenue growth and -8.8% against the five-year free cash flow per share growth, as given. The fair value from historical multiples is 286.94 USD. These are estimates built on fixed assumptions, not price targets. The free cash flow yield is 4.4%, and the company pays no dividend.

Risks

The current ratio of 0.72 means short-term obligations exceed liquid assets; a slowdown in collections or a funding squeeze would test this. Return on invested capital only just exceeds the cost of capital, so a fall in margins would quickly remove the economic value created. Stock-based compensation at 15.1% of revenue dilutes shareholders in substance even though the share count is nearly flat. Falling estimates for next year could signal slower growth ahead. The discounted cash flow rests heavily on the terminal value. The analysis has no debt maturity schedule and no revenue split by segment, so refinancing risk and the mix of business cannot be assessed here.