ServiceNow (NOW) Showing Signs Of Being Water-Logged And Getting Wetter

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified ServiceNow ( NOW) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified ServiceNow as such a stock due to the following factors:

  • NOW has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $135.8 million.
  • NOW has traded 1.2 million shares today.
  • NOW traded in a range 201.5% of the normal price range with a price range of $6.50.
  • NOW traded below its daily resistance level (quality: 196 days, meaning that the stock is crossing a resistance level set by the last 196 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on NOW:

ServiceNow, Inc. provides cloud-based services to automate enterprise IT operations primarily in North America, Europe, the Middle East, Africa, the Asia Pacific, and internationally. Currently there are 13 analysts that rate ServiceNow a buy, no analysts rate it a sell, and 1 rates it a hold.

The average volume for ServiceNow has been 2.2 million shares per day over the past 30 days. ServiceNow has a market cap of $7.8 billion and is part of the technology sector and computer software & services industry. The stock has a beta of 1.15 and a short float of 6.1% with 1.70 days to cover. Shares are down 5.2% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates ServiceNow as a sell. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, generally high debt management risk and feeble growth in its earnings per share.

Highlights from the ratings report include:
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Software industry. The net income has significantly decreased by 144.0% when compared to the same quarter one year ago, falling from -$9.93 million to -$24.23 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Software industry and the overall market, SERVICENOW INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The debt-to-equity ratio of 1.05 is relatively high when compared with the industry average, suggesting a need for better debt level management. Regardless of the company's weak debt-to-equity ratio, NOW has managed to keep a strong quick ratio of 2.26, which demonstrates the ability to cover short-term cash needs.
  • SERVICENOW INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, SERVICENOW INC reported poor results of -$0.54 versus -$0.31 in the prior year. This year, the market expects an improvement in earnings (-$0.04 versus -$0.54).
  • The gross profit margin for SERVICENOW INC is currently very high, coming in at 70.02%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -19.34% is in-line with the industry average.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.
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