ServiceNow shares are attractive to buy

ServiceNow is an enterprise software developer (ITSM solutions leader). The company's services allow you to automate the manual labor of employees and, thanks to the low-code approach, are very popular with companies.

Like many other SaaS firms, ServiceNow has been hit by a recent market correction: its shares are trading 20% below their highs. At the same time, there are no reasons for the decline in interest in the digitalization of business processes – the drop in quotations is purely speculative. Similar dynamics are observed for other similar companies: Salesforce, Adobe, CrowdStrike, and so on.

ServiceNow's revenue is 95% made up of subscriptions. Revenue is growing at a rapid pace: as a result of the last four quarters, it increased by 33%, 28%, 30% and 29% yoy, respectively. Management forecasts growth of 25% in the first quarter of 2021.

An important point: revenue at the end of 2020 amounted to $4.519 billion,while the size of free cash flow – $1.367 billion, or 30% of the revenue. ServiceNow consistently maintains this proportion: as revenue increases, so does cash flow.

ServiceNow's revenue is expected to grow to $5.7 billion, which means the stock is currently trading at 16x forward sales. Considering the fact that SaaS companies that do not have a good financial history were worth more than 20x forward sales a month ago, ServiceNow shares look quite attractive.

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