ServiceNow (NOW) Targets High Growth

Ensemble Capital recently published its 2022 Q2 investor letter, a copy of which can be downloaded here. The fund lost nearly a third of its value this year and trails the S&P 500 Index. However, it posted positive annualized returns of 7% and 10% respectively over the last 3 and 5 years.

One of the main reasons of Ensemble’s poor 2022 performance is the disappointing performance of high growth stocks this year like ServiceNow (NOW). The group of high growth stocks in Ensemble’s portfolio declined an average of 51% this year and contributed 14 percentage points of the fund’s -33% return this year. They don’t think they are overestimating NOW’s and other growth stocks’ future growth rates. Ensemble Capital believes that “during periods of fear about the future, other investors may suddenly start to ignore the long-term opportunity and focus instead on the very near term”.

Here is what the fund specifically said about ServiceNow (NOW):

ServiceNow is an enterprise software company that helps their corporate customers integrate all of their various software products into a unified platform. Their products are a key element of driving the digital transformation nearly every large company is undergoing. At the recent JP Morgan investor day, CEO Jamie Dimon explained that while the company could reduce expenses if needed should the economy slow, that their spending on digital transformation would continue as this spending was critical to the company managing costs and maximizing revenue over time. As an example of this type of spending, Dimon specifically pointed to ServiceNow, calling out that the company’s products now oversaw the single largest collection of JP Morgan data and highlighted that working with them had saved JP Morgan $50 million over the past few years.

While we have high expectations for ServiceNow’s long-term growth rate, at the company’s investor day in late May they offered an increased growth outlook for the next five years as they target even higher levels of growth than we have been expecting.

Our calculations show that ServiceNow (NOW) made it on our list of the 30 Most Popular Stocks Among Hedge Funds. ServiceNow (NOW) was in 90 hedge fund portfolios at the end of the first quarter of 2022, unchanged from the previous quarter. NOW shares lost 21% of their value over the last 52 weeks.

Recently we published another article and shared 5 stocks that are making headlines. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q2 page.

Disclosure: None. This article is originally published at Insider Monkey.