While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of ServiceNow (NYSE:NOW) climbed 4% this morning after Northland Capital upgraded the cloud-based IT services specialist from market perform to outperform.
So what: Along with the upgrade, analyst Tim Klasell plated a price target of $62 on the stock, representing about 19% worth of upside to yesterday's close. While value investors might be turned off by ServiceNow's hot streak in 2013, Klasell's recent field checks suggest to him thinks that there's plenty of room to run.
Now what: Northland expects ServiceNow's earnings, as well as the price multiple applied to them, to continue to expand.
"We recently spent some time speaking to new, or soon to be new, customers and integration partners," said Northland. "Not surprisingly the feedback on the product was very positive. What did surprise us were the plans to move from adopting core applications to adopting the platform rather quickly. This is something that not only addresses a larger market but something we think investors assign a higher multiple to, with platform revenues are sticker while offering a more open ended opportunity."
Of course, with the stock now up about 110% from its 52-week lows and trading at a price-to-sales multiple of 22, I'd say that the current premium for ServiceNow shares is more than fair.
Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.