The ServiceNow stock price continued its strong downward trend after publishing its financial results. NOW dropped by over 5% to $122, its lowest level since November 2023. This article explores whether it is safe to buy the dip.
ServiceNow issued a weak guidance
ServiceNow, a top software company in the workflow industry, reported its fourth quarter and full-year financial results.
These results came at a time when demand for software companies has dived amid fears of disruption by artificial intelligence tools.
The numbers were much better than expected, with the revenue coming in at $3.56 billion, up by 21% from the same period in 2024. This increase brought its annual revenue to $13 billion, up by 20% from what it made in 2024.
ServiceNow announced that its current remaining performance obligations (cRPO) rose to over $12 billion.
The stock declined after earnings because the guidance was lower than expected. The management expects that the first quarter revenue will be between $3.65 billion and $3.655 billion, with its operating margin rising to 31.5%.
For the year, the company expects that its revenue will jump by between 20.5% and 21% to over $15.3 billion and $15.57 billion. Analysts were expecting the annual revenue to come in at $15.7 billion.
On the positive side, ServiceNow’s business has become better valued than in the past few months. For example, data compiled by Seeking Alpha shows that the forward price-to-earnings ratio has dropped to 37.8, much lower than the five-year average of 67.
The GaaP price-to-earnings ratio is 75, also much lower than the five-year average of 252. Additionally, the forward PEG ratio is 1.64, lower than the sector median of 1.65.
There are signs the ongoing fear that the AI industry will disrupt the industry are farfetched as the company promises to continue having double-digit growth metrics in the coming years.
Wall Street analysts are still optimistic about the company, with the consensus estimate being $204, a 57% increase from the current level. For example, Cantor Fitzgerald has a target price of $200, while Jefferies has a target of $175.
Other analysts from companies like Baird, BTIG, and UBS have a bullish outlook on the company. The only analyst with a sell rating is Kash Rangan of Goldman Sachs, who downgraded the stock from buy to sell.
ServiceNow stock price technical analysis
NOW stock price chart |Source: TradingView
The weekly timeframe chart shows that the NOW stock has been in a strong downward trend in the past few months, moving from a high of $240 in January 2025 to the current $122.
It has crashed below the 61.8% Fibonacci Retracement level at $133.45. The stock has remained below the Supertrend indicator and the 50-week and 200-week Exponential Moving Averages (EMA).
The Relative Strength Index (RSI) and the MACD indicators have continued moving downwards in the past few months.
Therefore, the most likely scenario is where the stock continues falling as sellers target the next key support level at $105, the 78.6% retracement level. On the positive side, a move above the resistance level at $145 will invalidate the bearish outlook.
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