It's Now or Never

SBC Champ, Service Now

Some stocks just aren’t for me, for better or worse. I cannot figure out why they go up or down and how to value them. So, I pass. Service Now is one of those stocks. This is a terrific company with a terrific product. They have probably the most promotional CEO of any software company, bar Benioff, named Bill McDermott. They are a recurring revenue 20% grower with a free cash flow yield of 1.7% and a fleecing size SBC (stock based compensation) which is 18% of revenues annually. Service Now has a non-gaap operating margin of 29.5% which when you subtract the SBC fleecing you get a true operating margin of 11.5%. The stock trades at 56 times next year EPS estimates. In layman’s terms, if you owned this business at this valuation, it would take you 56 years, excluding the SBC fleecing (since EPS reported non-gaap), to get your investment back before you earned on your initial investment. But, who can argue with NOW, it is up about 30% in 2024 and up 250% since the beginning of 2023! This has been a massive compounder!