ServiceNow, Inc.’s (NYSE:NOW) price-to-sales (or “P/S”) ratio of 14x might make it look like a strong sell right now compared to the Software industry in the United States, where around half of the companies have P/S ratios below 4.9x and even P/S below 2x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it’s justified.
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NYSE:NOW Price to Sales Ratio vs Industry December 8th 2025
How Has ServiceNow Performed Recently?
Recent revenue growth for ServiceNow has been in line with the industry. It might be that many expect the mediocre revenue performance to strengthen positively, which has kept the P/S ratio from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.
Want the full picture on analyst estimates for the company? Then our free report on ServiceNow will help you uncover what’s on the horizon.
Do Revenue Forecasts Match The High P/S Ratio?
There’s an inherent assumption that a company should far outperform the industry for P/S ratios like ServiceNow’s to be considered reasonable.
Taking a look back first, we see that the company grew revenue by an impressive 21% last year. The strong recent performance means it was also able to grow revenue by 83% in total over the last three years. Therefore, it’s fair to say the revenue growth recently has been superb for the company.
Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 18% per year over the next three years. That’s shaping up to be materially lower than the 31% per year growth forecast for the broader industry.
With this in consideration, we believe it doesn’t make sense that ServiceNow’s P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company’s business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.
The Bottom Line On ServiceNow’s P/S
It’s argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
Despite analysts forecasting some poorer-than-industry revenue growth figures for ServiceNow, this doesn’t appear to be impacting the P/S in the slightest. The weakness in the company’s revenue estimate doesn’t bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn’t improve. This places shareholders’ investments at significant risk and potential investors in danger of paying an excessive premium.
A lot of potential risks can sit within a company’s balance sheet. Take a look at our free balance sheet analysis for ServiceNow with six simple checks on some of these key factors.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.
