ServiceNow: Profits in the Cloud

02/18/2014 7:00 am EST

Focus: STOCKS

Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

Large companies need help handling their IT infrastructure, and this featured stock is emerging as a trusted partner in that area, suggests Mike Cintolo, editor of Cabot Top Ten Trader.

ServiceNow (NOW) makes Cloud-based software that keeps work flowing, consolidates data, automates the administration of new computers, and lets the IT department monitor activities.

ServiceNow's software is sold on a subscription basis and its number of subscribers topped 2,000 for the first time in Q4. It also boasts a subscription renewal rate of 96%, making for excellent recurring revenue.

The company has been featured in our newsletter five times since it came public in June 2012, and its latest appearance comes courtesy of a Q4 earnings report that featured a 67% jump in revenue.

The two cent loss in EPS was above the forecasted one cent, but investors don't seem to mind. The quarterly report prompted positive notes from four different analysts, who noted that the company's estimates for Q1 and full-year 2014 revenue were well above analysts' projections.

The company's expansion of its product offerings to include human resource automation also came in for positive comments.

ServiceNow is taking market share away from big companies like CA Technologies, HP, IBM, and BMC Software, and investors are taking note. Not even recent patent infringement accusations from HP have made a dent in investors' opinion of ServiceNow.

NOW spent 12 weeks trading under resistance at $58 from October through December, but got moving quickly in January. The stock corrected from $62 to $58 just ahead of earnings, but popped to $70 briefly on the good news.

The stock has since found support at $62. With a little patience, you should be able to sharpshoot some NOW on a dip to $64. A dip all the way to its 50-day moving average, now at $57, would be abnormal.

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