ServiceNow stock rating downgraded to Hold from Buy at Erste Group

Investing.com - Erste Group downgraded ServiceNow (NYSE:NOW) from Buy to Hold on Wednesday, citing limited upside potential for the stock. According to InvestingPro data, the company currently trades at a P/E ratio of 130, significantly above industry averages, suggesting the stock may be fully valued.

The research firm noted that ServiceNow continues to offer customers innovative products to increase productivity, but pointed to slightly lower growth momentum compared to the previous year. The company maintains strong revenue growth of 21% year-over-year, with an impressive five-year revenue CAGR of 26%.

ServiceNow expects software revenue from subscriptions to increase by 19% to 19.5% in the second quarter, according to Erste Group’s analysis.

The firm observed that ServiceNow’s operating margin and return on equity are roughly in line with the sector average, but its expected P/E ratio for 2025 is significantly higher.

Based on this valuation assessment, Erste Group analyst Hans Engel determined that "the stock’s upside potential is therefore limited for the time being," leading to the downgrade.

In other recent news, ServiceNow is preparing to release its second-quarter financial results for fiscal 2025. Multiple analyst firms have shared their perspectives ahead of this announcement. Citizens JMP has maintained a Market Outperform rating with a price target of $1,300. Cantor Fitzgerald also reiterated an Overweight rating and set a price target of $1,200, citing positive previews based on favorable checks. BofA Securities raised its price target to $1,100, emphasizing ServiceNow’s leadership in the IT and custom applications industry. Meanwhile, ServiceNow’s planned $2.85 billion acquisition of Moveworks is under an antitrust review by the U.S. Justice Department. The review requires both companies to respond to additional information requests before proceeding with the deal. Additionally, Goldman Sachs reiterated a Buy rating with a $1,150 price target, noting the company’s strong first-quarter results and growth in current remaining performance obligations. These developments provide investors with a variety of insights into ServiceNow’s current market position and future prospects.

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