Which Stocks Are Cheap Before Earnings Tomorrow?

Daniel Pronk•Jul 21, 2026

Summary

Daniel provides a comprehensive analysis of Google, ServiceNow, and Tesla prior to their quarterly earnings releases. Daniel's primary thesis is that the market is currently mispricing certain sectors, particularly software, while overvaluing companies that rely on future promises rather than current profitability. Daniel emphasizes the importance of looking at operating cash flow and revenue acceleration rather than just free cash flow during heavy capital expenditure cycles.

Google (GOOG/GOOGL): Daniel notes that Google is performing exceptionally well in search and cloud, with operating margins expanding to 36.1%. However, Daniel points out that the stock is trading near its historical high price-to-earnings ratio, suggesting a limited margin of safety for new investors. Daniel calculates a fair value of approximately $397 per share but expects only a 13% annual return, which does not meet Daniel's personal investment threshold.

ServiceNow (NOW): Daniel highlights ServiceNow as an undervalued opportunity despite a slight deceleration in revenue growth. Daniel observes that the company's free cash flow margin remains strong at 33% and the price-to-free cash flow multiple is at a historical low of 22.7. Daniel suggests that as the company proves it is not being disrupted by AI, its multiple could re-expand, potentially leading to an 18-20% annual return over the next five years.

Tesla (TSLA): Daniel expresses significant concern regarding Tesla's valuation, noting that underlying fundamentals like operating income and net income have been declining for several years. Daniel argues that the current price-to-earnings ratio of 367 is unjustifiable for a company with flat revenue and shrinking margins. Daniel believes the stock is currently tied to hype and Elon Musk's ability to excite investors rather than any tangible fundamental growth.

Mentioned Stocks

NOW

Sentiment: BUYAction: RECOMMENDED

Reasoning: Daniel considers ServiceNow undervalued as it trades at a low price-to-free cash flow multiple of 22.7 while maintaining 20% revenue growth. Daniel believes the business is not being disrupted by AI and projects an 18% annual return if it meets its 2030 targets. Daniel is not buying personally only because Daniel already has high software exposure through Constellation Software.

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GOOGL

Sentiment: HOLD

Reasoning: Daniel acknowledges Google's strong 22% revenue growth and dominant cloud performance but remains neutral because the stock trades at 35 times trailing earnings, which is at the high end of its historical range. Daniel estimates a fair value of $397 and a 13% CAGR, but Daniel desires a larger margin of safety before buying.

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TSLA

Sentiment: SELL

Reasoning: Daniel views Tesla as massively overvalued and extremely risky, citing that operating income and net income have been declining for 3-4 years. Daniel points out extreme multiples like a forward PE of 170 and a price-to-sales of 14.5, arguing that investors are paying for future success in robotics and AI that is not guaranteed. Daniel believes the stock is detached from fundamental reality.

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