ServiceNow and Deckers: A Common-Sense Look at Two Stocks on the Watchlist

The setup here is a classic puzzle. Two companies, both recently spotlighted by a formal committee as worthy of study, are telling investors completely different stories. One is a tech giant whose stock fell hard after a strong report. The other is a lifestyle brand posting record results and raising its targets. The real question for any investor is: which story is the real one?

ServiceNow's case is a textbook example of a valuation disconnect. The company delivered a clean beat on both earnings and revenue last quarter, with revenue of $3.57 billion and EPS of $0.92. Yet the market's reaction was a sharp 11.43% drop in after-hours trading. That kind of sell-off on good news usually points to one thing: skepticism about whether the current price is justified. The stock is now hovering near its 52-week low, suggesting investors are demanding a much clearer path to future growth before they'll pay up.

Deckers presents the opposite headline. The company just posted record quarterly revenue of $1.96 billion and record diluted EPS of $3.33. More importantly, it raised its full-year guidance for both its HOKA and UGG brands, a clear vote of confidence in the strength of consumer demand. This isn't just about hitting targets; it's about the company's ability to keep raising them. The committee's pick here seems to be a bet that this momentum is real and sustainable.

So why are both on the watchlist? The answer lies in the gap between the headlines and the underlying reality. For ServiceNow, the puzzle is whether its high valuation is a fair premium for its platform potential or a bubble about to pop. For Deckers, the question is whether its record results are a temporary surge or the start of a new, durable growth cycle. The committee's selection forces you to kick the tires on both. Look past the numbers and ask: is the product demand real? Is the brand loyalty deep? That's where the real story begins.

The Smell Test: Product Quality and Brand Loyalty

The real test of any business is whether people actually want its product. For investors, that means looking past the financials to the fundamentals of demand and loyalty. Let's kick the tires on both companies.

ServiceNow's story is one of a powerful platform, but the market is asking a tough question: is the AI-driven growth story worth the price? The company's own actions suggest management believes in the product. Just last month, it announced a $5 billion share repurchase authorization, a massive vote of confidence in its capital allocation. That move, combined with a free cash flow of $4.6 billion, shows the business is generating serious cash. Yet the stock's sharp 11% drop after a strong report suggests the market is skeptical. The common sense takeaway? The product is clearly good-subscription growth is solid and the backlog is ballooning. But the skepticism is about whether that quality translates into the kind of explosive, AI-fueled growth that justifies a premium valuation. The gap between management's confidence and investor doubt is the central tension.

Deckers, on the other hand, is building a case on real-world brand power. The company has now posted earnings that beat expectations for ten consecutive quarters. That's not a fluke; it's a track record of consistent execution and strong consumer demand. The record results for HOKA and UGG aren't just about hitting targets-they're about raising them, which signals deep brand loyalty and pricing power. The common sense filter here is simple: if people keep buying, the product must be good. The company's ability to raise its full-year outlook is a direct reflection of that sustained demand.

Both stocks are trading at a significant discount to their recent peaks, which could signal an overreaction or a longer-term reset. ServiceNow's price is near its 52-week low, while Deckers trades 58% below its 52-week high. For ServiceNow, that discount may reflect justified concerns about growth sustainability. For Deckers, it could be a classic case of the market punishing a stock for a post-peak correction, ignoring the underlying strength of its brands. The bottom line is that brand loyalty and product quality are the bedrock of any durable investment. Deckers' streak of beats suggests that foundation is solid. ServiceNow's massive buyback shows management believes it is too, but the market is still waiting to see the proof.

Financial Health and Growth Drivers

The numbers tell a clear story, but the market's reaction shows it's not just about the bottom line. It's about whether that bottom line is growing fast enough to justify the price.

ServiceNow's financials are rock solid. The company's core subscription engine is firing on all cylinders, with subscription revenue growing 19.5% in constant currency last quarter. That's not just growth; it's a sign of deep, ongoing demand for its workflow platform. The company's ability to convert that demand into cash is even more impressive. Free cash flow surged 34% to $4.6 billion last year, providing ample fuel for its ambitious growth plans and massive share buybacks. This is the kind of financial health that lets a company invest in AI integration and strategic partnerships without breaking a sweat. The common sense takeaway is that the business is fundamentally strong and well-capitalized.

Yet the stock's sharp 11% drop after this report is the ultimate red flag. It suggests the market is looking past the current cash flow and asking a tougher question: is this growth rate sustainable enough to support the valuation? The company's own guidance for 2026 calls for subscription revenue growth of 19.5% to 20%, which is solid but may not be enough to excite investors priced for breakneck AI-driven expansion. The disconnect here is classic. The company has the money and the platform, but the market is skeptical about the growth trajectory ahead.

Deckers, by contrast, is showing the kind of execution that builds investor confidence. The company just posted record quarterly revenue of $1.96 billion and record diluted EPS of $3.33. More importantly, it raised its full-year earnings guidance to a range of $6.80-$6.85 per share. That move is a direct reflection of strong product demand and operational discipline. It's not just about hitting targets; it's about the company's ability to keep raising them, which signals deep brand loyalty and pricing power. The financial health here is clear: record sales and profits are translating directly into a better outlook for shareholders.

The bottom line is that both companies have durable financial strength, but they're facing different tests. ServiceNow has the cash and the platform, but the market is demanding a clearer, faster growth path. Deckers has the brand power and the rising guidance, proving that real-world demand can drive a stock higher. For investors, the choice comes down to which story they believe is more likely to play out.

Catalysts and What to Watch

The committee's watchlist designation means the real story is still unfolding. For both ServiceNow and Deckers, the next few months will be about proving or disproving the theses we've kicked the tires on. The catalysts are clear, but they require watching the right metrics.

For ServiceNow, the immediate test is whether the stock can stabilize above its 52-week low of $113.13. The company's massive $5 billion share repurchase authorization shows management's confidence, but the market is waiting for concrete evidence that its AI-driven growth story is gaining real traction. Investors need to watch for signs that the company's powerful platform is being adopted at scale by new customers, not just existing ones. The next earnings report will be the first major litmus test. If the company can show that its AI features are accelerating customer acquisition and deal sizes, it may start to close the gap with skeptical investors. Until then, the stock's path will likely remain choppy, hovering near those lows.

Deckers, meanwhile, is in a different phase. The company has already proven its domestic brand strength with ten consecutive quarters of earnings beats and record margins. The next catalysts are about scaling that success. Investors must monitor the progress of HOKA's international expansion outside its established markets. Can the brand replicate its U.S. success in Europe and Asia? At the same time, the company's ability to maintain its record gross margins as it scales production and sales will be critical. Any pressure on those margins would signal that growth is coming at a cost, which could challenge the optimistic outlook. The next earnings report will show if the company's execution on these fronts is as strong as its guidance suggests.

Both stocks are now in a holding pattern, waiting for the next major catalyst: their next quarterly results. For ServiceNow, the question is whether the AI promise is finally materializing in the numbers. For Deckers, it's whether its brand power can keep driving profits higher as it expands. The watchlist phase is over; the real work of watching the numbers begins.