I love it when my passion for sailing dovetails comes together with my love for crushing the market with high-growth tech stocks.
Here’s the thing. I moved to the Bay Area 35 years ago in June for two main reasons:
- To get more directly involved in Silicon Valley after analyzing tech for many years.
- To race J-24 sailboats on San Francisco Bay, the most exciting place in the world to sail.
Here’s the thing. As a small-boat skipper, I would occasionally get the chance to “slipstream” a larger yacht.
The term refers to getting behind a bigger boat and letting its draft pull you along. Also known as “drafting,” the process allows you to make good speeds with a lot less effort.
And that is exactly the type of situation we find with a company that is “slipstreaming” in the wake of Microsoft Corp. (MSFT).
Today, I’m going to show you why the Microsoft alliance will help this quiet tech leader absolutely crush the market…
Now then, when I say the company I have in mind is quiet, there’s a good reason for that.
They don’t get a lot of mindshare with the media because they’re not in a sexy field like neural implants, flying cars, or artificial intelligence.
Instead, they offer information technology (IT) services to enterprise clients. It’s a very profitable leader in a sector with a global value of roughly $3.5 trillion.
ServiceNow Inc. (NOW) provides services that are vital for keeping modern companies running their backend systems smoothly. That’s especially true as thousands of companies move much of their data and applications to the cloud.
The company offers clients an IT environment that unifies everything from operations and asset management, to security and risk compliance, to developing new apps in-house.
That may not sound sexy…unless you’re like me and find that crushing the market with great tech stocks is about as sexy as it gets.
Make no mistake. This is a very well run firm. To verify what I’m saying, just look at the stock’s performance.
Beating the Market by 474% in Under Two Years
I first recommended NOW back on Oct. 27, 2017. Since then, the stock is up 217%. By contrast, the bellwether S&P 500 is up just shy of 38% over the period.
That means NOW beat the broad market during the period by 474%.
But don’t worry. I still see plenty of upside ahead.
Which brings me around to Microsoft. When I heard recently that the two were stepping up their cloud-based relationship, I got very excited.
Here’s the thing. Microsoft’s move to cloud hosting and related services roughly five years ago has been a huge boon to the firm and its shareholders.
We’ve seen quarters in which sales of Azure and other cloud offerings had nearly doubled.
It’s a major reason why Microsoft now has a market cap of more than $1 trillion. That’s 1,900% more than the market value for ServiceNow, which means the smaller firm stands to gain greatly from “slipstreaming” in Microsoft’s wake.
Under the new pact, Microsoft says it’s elevating ServiceNow to become a key “strategic partner.” In turn, NOW will house its full software as a service (SaaS) experience inside of Microsoft’s Azure platform.
But wait, there’s more…
Another Deal to Sweeten the Pot Even More
In a separate deal, Microsoft will implement ServiceNow’s IT & employee experience workflow products across its own business. Mr. Softy says it wants to improve operations, enhance employee experiences, and deliver stronger business outcomes.
With ServiceNow, Microsoft will bring even more digital workflows into its organization, so employees can spend less time on manual tasks.
I believe this is a great deal for both firms. But it’s the catalyst for a new round of growth for ServiceNow that has me so excited.
And I have to say, I’m not surprised that the firm was able to pull this off. After all, it has great leadership.
CEO John Donahoe is one of the top technology leaders in the country, with a track record to prove it. Joining the firm April 2017, Donahoe had served as the CEO of eBay Inc. (EBAY) from 2008 to 2015.
During his tenure, eBay saw sales double to more than $18 billion as the stock’s market cap rose by more than 250% to $80 billion. Donahoe also was the architect of eBay’s 2015 spin-off of PayPal Inc. (PYPL).
He clearly has management skills deep in his DNA. He earlier served as CEO at Bain & Co., a respected management consulting firm focused on Fortune 500 clients. He has a Master’s in business administration from Stanford University.
Donahoe is surrounded by top talent. His senior team hails from such titans as EMC Corp., LinkedIn, Microsoft, Oracle Corp. (ORCL), and PayPal.
He also boasts a great base of operations. His company has a long list of top-tier clients. We’re talking everyone from Accenture Ltd. (ACN) to General Electric Co. (GE) to the U.S. Department of Energy.
In all, ServiceNow has 5,400 global customers. The list includes 75% of Fortune 500 firms. That’s a pretty amazing track record for an outfit that’s only been in business for 15 years.
Yes, NOW’s earnings were a little softer in the second quarter than I would like to have seen. But bear in mind they still showed an annual boost of 29%, an amount most companies would love.
With a $50 billion market cap, NOW trades at roughly $265. But with this kind of growth, it won’t stay there long.
Over the past three years, ServiceNow has an average earnings increase of 75%. So, we can conservatively forecast earnings gains of 30%.
At that rate, the stock could double from here in 2.5 years.
That’s why I say NOW is one of market-crushing tech stocks that can really put you on the road to wealth.
Cheers and good investing,
Michael A. Robinson