The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But on a lighter note, a good company can see its share price rise well over 100%. Long term ServiceNow, Inc. (NYSE:NOW) shareholders would be well aware of this, since the stock is up 231% in five years. It's also good to see the share price up 13% over the last quarter. But this move may well have been assisted by the reasonably buoyant market (up 12% in 90 days).
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During the five years of share price growth, ServiceNow moved from a loss to profitability. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. Indeed, the ServiceNow share price has gained 59% in three years. During the same period, EPS grew by 139% each year. This EPS growth is higher than the 17% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat. Of course, with a P/E ratio of 91.62, the market remains optimistic.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that ServiceNow has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling ServiceNow stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
We're pleased to report that ServiceNow shareholders have received a total shareholder return of 74% over one year. That's better than the annualised return of 27% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 1 warning sign for ServiceNow that you should be aware of.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.