Data sourced from howebusinessdaily.com, originally published 29 August 2019. All figures reflect snapshot values at that date and should not be used for current investment decisions.
Overview
Quantitative screening models give investors a structured way to compare companies across multiple financial dimensions simultaneously. This article breaks down a set of quant signals for two NYSE-listed companies — ServiceNow, Inc. (NYSE:NOW), an enterprise cloud software platform, and Waste Management, Inc. (NYSE:WM), a large-cap environmental services business — covering valuation composites, price momentum, return quality, and earnings integrity metrics.
Q.i. Value: Identifying Undervaluation
The Q.i. Value ranks companies using four ratios: EBITDA Yield, Free Cash Flow (FCF) Yield, Liquidity, and Earnings Yield. A lower score generally suggests the company is more undervalued relative to peers.
- ServiceNow (NOW): Q.i. Value of 55.00
- Waste Management (WM): Q.i. Value of 39.00
On this metric, Waste Management scores materially lower, suggesting it appeared relatively more undervalued than ServiceNow at the time of measurement.
Value Composite Score (VC1 and VC2)
Developed by James O’Shaughnessy, the Value Composite (VC) score aggregates five valuation ratios: price-to-earnings (P/E), price-to-cash-flow (P/CF), EBITDA-to-enterprise value (EV), price-to-book (P/B), and price-to-sales (P/S). Scores run from 1 to 100, where scores closer to 0 indicate potential undervaluation and scores near 100 suggest overvaluation.
A second variant, Value Composite 2 (VC2), adds shareholder yield as a sixth input.
| Company | VC1 Score | VC2 Score |
|---|---|---|
| ServiceNow (NOW) | 80 | 82 |
| Waste Management (WM) | 57 | 48 |
ServiceNow’s VC1 score of 80 and VC2 of 82 placed it toward the expensive end of the spectrum at snapshot date. Waste Management’s VC1 of 57 and VC2 of 48 indicated a more balanced to moderately valued profile, with shareholder yield improving its relative attractiveness in the VC2 calculation.
ERP5 Rank
The ERP5 Rank combines four factors — Earnings Yield, Return on Invested Capital (ROIC), Price-to-Book, and 5-Year Average ROIC — to help identify undervalued companies. Lower ranks indicate greater potential undervaluation.
- ServiceNow (NOW): ERP5 Rank of 14,508
- Waste Management (WM): ERP5 Rank of 8,113
Waste Management ranked considerably lower (better) on the ERP5 scale, consistent with its lower Q.i. and VC scores.
Historical Volatility
Historical volatility measures how much a stock’s price has deviated over a given period. Higher volatility generally implies greater risk and uncertainty. All figures below are percentage-based annualised volatility readings at the snapshot date.
| Period | ServiceNow (NOW) | Waste Management (WM) |
|---|---|---|
| 3 Month | 30.46% | 15.83% |
| 6 Month | 31.15% | 14.21% |
| 12 Month | 38.10% | 14.25% |
ServiceNow exhibited roughly 2.5× the historical volatility of Waste Management across all measured periods, reflecting the higher price risk typically associated with high-growth software stocks versus mature, cash-generative industrials.
Price Index (Momentum)
The Price Index is calculated by dividing the current share price by the share price at a prior date. A value above 1.0 indicates price appreciation; below 1.0 indicates depreciation over that period.
ServiceNow (NOW)
| Period | Price Index |
|---|---|
| 1 Month | 0.933 |
| 3 Month | 1.000 |
| 5 Month | 1.104 |
| 10 Month | 1.623 |
| 12 Month | 1.379 |
| 24 Month | 2.382 |
| 36 Month | 3.632 |
Waste Management (WM)
| Period | Price Index |
|---|---|
| 1 Month | 0.992 |
| 3 Month | 1.087 |
| 5 Month | 1.142 |
| 10 Month | 1.372 |
| 12 Month | 1.313 |
| 24 Month | 1.584 |
| 36 Month | 1.902 |
Over longer horizons, ServiceNow significantly outpaced Waste Management in price appreciation — a 3-year index of 3.63 versus 1.90 — though this came with substantially higher volatility. Both stocks showed slight short-term weakness in their 1-month readings.
Return Metrics: ServiceNow (NOW)
Return on Assets (ROA)
Return on Assets (ROA) measures net income after tax divided by total assets, indicating how efficiently a company uses its asset base to generate profit.
- ServiceNow ROA: 0.000805 (approximately 0.08%)
This near-zero ROA is consistent with ServiceNow’s growth-phase profile at the time, where the company was investing heavily in sales, marketing, and R&D rather than optimising for near-term profitability.
Return on Invested Capital (ROIC)
ROIC is calculated by dividing net operating profit (EBIT) by employed capital (total assets minus current liabilities). The ROIC Quality ratio divides the 5-year average ROIC by the standard deviation of the 5-year ROIC — a higher figure indicates more consistent returns.
- ROIC (current): -0.015148
- ROIC 5-Year Average: -0.140710
- ROIC Quality: 0.306066
Negative ROIC figures reflect ServiceNow’s investment-heavy operating model at this point in its growth cycle, where operating losses were being generated while scaling the business.
FCF Yield 5-Year Average
The FCF Yield 5-Year Average divides the 5-year average free cash flow by the current enterprise value (market cap + debt + minority interest + preferred shares − cash). This gives a longer-term view of cash generation relative to business size.
- ServiceNow FCF Yield 5yr Avg: 0.003484 (approximately 0.35%)
Gross Margin Score
The Gross Margin Score (Marx) evaluates gross margin stability and growth over the previous eight years. The scale runs from 1 (best) to 100 (worst).
- ServiceNow Gross Margin Score: 8.00 — indicating strong, consistent gross margin improvement over the measured period.
Quality and Earnings Integrity Metrics: Waste Management (WM)
Current Ratio
The Current Ratio (current assets ÷ current liabilities) measures short-term liquidity. Very high ratios may suggest inefficient use of working capital; very low ratios may indicate difficulty meeting near-term obligations.
- Waste Management Current Ratio: 1.70 — indicating adequate short-term liquidity.
Gross Margin Score
- Waste Management Gross Margin Score: 7.00 — also near the top of the scale (1 = best), suggesting a highly stable gross margin profile over the prior eight years.
Beneish M-Score (Earnings Manipulation Indicator)
The M-Score, developed by accounting professor Messod Beneish, uses eight financial statement variables to estimate the likelihood that a company has manipulated its reported earnings. The eight inputs are:
- Days’ Sales in Receivables Index
- Gross Margin Index
- Asset Quality Index
- Sales Growth Index
- Depreciation Index
- SG&A Expenses Index
- Leverage Index
- Total Accruals to Total Assets
A score above −1.78 is a flag that earnings manipulation may be present. A score well below −1.78 indicates a lower probability of manipulation.
- Waste Management M-Score: −2.853 — below the −1.78 threshold, suggesting no strong signal of earnings manipulation at this date.
Piotroski F-Score
The Piotroski F-Score, developed by accounting professor Joseph Piotroski, rates financial strength on a scale of 1 to 9. It evaluates nine binary criteria across three categories:
- Profitability: ROA, operating cash flow, change in ROA, accruals (earnings quality)
- Leverage & Liquidity: Change in long-term debt ratio, change in current ratio, absence of new share issuance
- Operating Efficiency: Change in gross margin, change in asset turnover
A score of 9 indicates strong financial health; a score of 1 indicates weakness.
- Waste Management F-Score: 5 — a middling score suggesting a mix of positive and neutral signals, neither strongly bullish nor bearish on financial health criteria.
Summary Comparison
| Metric | ServiceNow (NOW) | Waste Management (WM) |
|---|---|---|
| Q.i. Value | 55.00 | 39.00 |
| Value Composite 1 | 80 | 57 |
| Value Composite 2 | 82 | 48 |
| ERP5 Rank | 14,508 | 8,113 |
| 12-Month Volatility | 38.10% | 14.25% |
| 36-Month Price Index | 3.632 | 1.902 |
| Gross Margin Score | 8.00 | 7.00 |
| Beneish M-Score | N/A | −2.853 |
| Piotroski F-Score | N/A | 5 |
At the time of this snapshot, Waste Management scored more favourably on most traditional value metrics, while ServiceNow demonstrated far stronger long-term price momentum despite appearing expensive by composite valuation measures. These two stocks represent contrasting archetypes: a high-growth, high-multiple software company versus a durable, cash-generative industrial business.
Important Disclaimer
All data in this article reflects a single point-in-time snapshot from August 2019. Quantitative signals are screening tools, not buy or sell recommendations. Investors should conduct their own due diligence and consult a qualified financial adviser before making any investment decisions. Past price performance does not guarantee future results.