Life sciences cloud computing services provider Veeva Systems (NYSE:VEEV) is on a tear. The company turned profitable a few years ago, and strong sales growth ever since has sent shares soaring. Since the start of 2017 to the time of this writing, the stock is up a whopping 210%.

It's been a great run for shareholders of the tech outfit, and all indications are that the business will just keep getting bigger. However, Veeva's stock isn't cheap, pricing in quite a bit of future earnings growth. Potential new owners of the stock shouldn't hastily pass on this one, though.

What happened last year

2018 was another great year for Veeva Systems. Software services are a high-growth endeavor as the world transitions to digital. Healthcare, pharmaceutical, biotech, and other life science companies are no exception, putting Veeva's various technology offerings to good use to streamline operations and compliance. The result for Veeva is lots of new sales from new and existing customers alike, and even higher profitability.

Metric

12 Months Ended 1/31/2019

12 Months Ended 1/31/2018

Change YOY

Revenue

$862 million

$691 million

25%

Gross profit margin

71.6%

69.4%

2.2 pp

Operating income

$223 million

$158 million

41%

Adjusted earnings per share

$1.63

$0.96

70%

YOY = year over year. pp = percentage points. Data source: Veeva Systems.

Veeva is winning new customers and growing its top line, and how it's doing so is important. Recurring subscription revenues made up 81% of total revenue last year, expanding at a 24% clip over 2017. With a whopping gross profit margin of 83.2% (compared to just 23.5% gross profit for everything else), signing up companies to its suite of software equates to huge gains on the bottom line. With revenue now handily outpacing overall expenses, the result is an even faster-expanding earnings-per-share metric.

These trends are investors' friends

Veeva is benefiting from two tailwinds blowing strong at its back: an aging global population that is putting stress on healthcare systems and a mass migration to digital systems. Thus, it looks likely that there is quite a bit of expansion room left as the company makes more inroads into the life science and health industries. For the 2020 fiscal year (the 12 months ending Jan. 31, 2020), management expects revenues to be between $1.025 and $1.03 billion -- a 19% annual increase. Adjusted earnings are expected to be $1.91 to $1.94, at least a 17% increase.

A doctor holding a stethoscope up to an illustrated bubble with a cartoon rendition of a person in it.

Image source: Getty Images.

That's a slowdown from the recent past, but Veeva has a history of underpromising and overdelivering. Nevertheless, it's worth bearing the forecast in mind, because Veeva is an expensive stock. Its trailing 12-month price to free cash flow (money left over after basic operating expenses and capital expenditures are paid for) is 65.7 as of this writing, and trailing 12-month price to adjusted earnings is 77.8. One-year forward price to adjusted earnings based on management's aforementioned expectations isn't much better at 66.4.

Those are lofty valuations, but earnings metrics don't tell the whole story. Veeva is still growing fast, and it's investing back into itself to do so. Research-and-development spending went up 20% last year to $159 million, sales and marketing increased 16% to $149 million, and administrative grew 43% to $86 million. Eventually, those expenses will level off, but for now, it's all about maximizing revenue.

That can make this technology play an especially volatile one, as it still has its foot on the gas at the expense of maximum profitability. With health-and-wellness companies still making the jump to digital at a rapid pace, Veeva has plenty of room to keep going. Shares trade at a hefty premium, but investors who can wait it out for the long haul should continue to reap rewards.