Many large tech companies have completed stock splits in recent years.
Several technology companies recently conducted stock splits.More notable stock splits in tech in recent memory include members of the 'Magnificent Seven' tesla, Nvidia, Amazon, alphabetand apple.
There are many upcoming stock splits to watch, but there's one artificial intelligence (AI) company that I think could be next. ServiceNow (now 0.93%).
Let's dig into why ServiceNow is a strong stock split candidate and explore the investment benefits of this software-as-a-service (SaaS) leader.
How is a stock split carried out?
Before discussing ServiceNow specifically, investors should understand the basics of stock splits.
Stock splits are essentially a form of financial engineering. The number of outstanding shares will increase according to the split ratio. For example, in a 5-for-1 split, the number of shares would be multiplied by five.
As a result, the stock's price will fall by that multiple. This dynamic means that the market capitalization of a stock that undergoes a stock split remains essentially unchanged.
Image source: Getty Images.
Why is ServiceNow splitting its stock?
One of the most common reasons why companies decide to split their stock is because the stock has increased significantly in value over a relatively short period of time. As a result, most individual investors perceive stocks to be expensive and unaffordable.
Again, a stock split does not change the company's value, but investors tend to view the stock as undervalued because the stock price has fallen. Then, when a stock split occurs, there is usually an influx of new investors.
Since its initial public offering (IPO) in 2012, ServiceNow's stock price has increased 2,970%. Additionally, ServiceNow stock has risen 77% over the past 18 months or so as AI has become a focal point for technology stocks.
ServiceNow's stock price is $755; look cheap. Given that the company has never split its stock and its secular themes are inspiring the world of AI, this could be a unique opportunity for ServiceNow to follow in the footsteps of big tech companies with potential for further gains. There is sex.
Should you invest in ServiceNow stock?
It is very important for investors to understand that stock price alone does not determine whether a stock is overvalued or undervalued. In fact, the chart below shows that ServiceNow is trading at a large discount on a price per sales (P/S) basis when benchmarked against other SaaS growth stocks.
NOW PS ratio data by YCharts
After analyzing the data above, we have a legitimate case to believe that ServiceNow is undervalued, despite its seemingly expensive stock price.
Another way to look at this dichotomy is that it's not the number of shares you own that matters. It's the amount of money you're working for. It's almost certainly a better idea to own one share of a $1,000 stock than to own 1,000 shares of a $1 stock. Stock prices generally reflect company sentiment.
As far as ServiceNow is concerned, there's another reason why I think the company is a potential stock split. As we mentioned recently, ServiceNow is not as well-known in the technology and AI space as its competitors. A stock split would be a good way for the company to potentially make headlines and attract the attention of a broader group of investors.
That being said, I'm not saying that ServiceNow should use stock splits as a PR strategy to increase prices. Investors should buy ServiceNow stock based purely on tangible performance.
Over the past few quarters, ServiceNow has been rapidly advancing in the world of AI, and it's showing in the company's results. Revenue growth is accelerating thanks to excellent customer retention metrics and ServiceNow's ability to cross-sell additional products and services.
Additionally, the company has partnerships with the following companies: microsoftNvidia, and international business machine. I believe these are important stepping stones to further lead generation and new sales opportunities for long-term growth.
At the end of the day, regardless of the split, ServiceNow is a solid investment opportunity. As the growth story continues to unfold, now seems like a great time to stock up and prepare to hold for the long term.
Suzanne Frey, an Alphabet executive, is a member of the Motley Fool's board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool's board of directors. Adam Spatacco has held positions at Alphabet, Amazon, Apple, Microsoft, Nvidia, Palantir Technologies, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Datadog, HubSpot, Microsoft, MongoDB, Nvidia, Palantir Technologies, ServiceNow, Snowflake, Tesla, and Workday. The Motley Fool recommends International Business Machines and recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
