Shares of Veeva Systems (NYSE:VEEV) recently rose to all-time highs after its first-quarter earnings report impressed investors. The life science cloud services provider's revenue rose 38% annually to $337.1 million, beating estimates by $12.3 million.

Veeva's net income under generally accepted accounting principles (GAAP) rose 18% to $86.6 million, while its non-GAAP net income grew 34% to $105.2 million, or $0.66 per share, beating expectations by $0.07. Veeva's growth was impressive, but does this stock still have room after rallying roughly 230% over the past three years?

A physician accesses a cloud-based app.

Image source: Getty Images.

Why the bulls love Veeva

Veeva provides cloud-based services for life science and healthcare companies. Its core services help top pharmaceutical companies like GlaxoSmithKline and AstraZeneca track customer relationships, industry regulations, clinical trials, prescribing habits, and other data.

Veeva enjoys a first-mover advantage in this niche space, doesn't face any meaningful competitors, and has seen demand for its services surge as competition escalates between drugmakers. Its platform is deeply integrated into salesforce.com's (NYSE:CRM) marketing and service clouds.

The COVID-19 crisis isn't disrupting demand for Veeva's services. Instead, it's likely reinforcing the importance of those services as companies rush to develop new treatments and vaccines for the pandemic. That's why Veeva's revenue and net income growth both accelerated during the first quarter, which bore the full impact of COVID-19:

Growth (YOY)

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Q1 2021

Revenue

25%

27%

25%

34%

38%

Net Income (Non-GAAP)

53%

43%

35%

20%

34%

Data source: Veeva quarterly reports. YOY = year over year. 

COVID-19 mainly affected Veeva's two recent acquisitions -- events management platform Physicians World and patient analytics platform Crossix -- which faced suspensions of in-person events and declining ad revenue throughout the crisis.

Veeva's Vault business -- a cloud enterprise content management platform for life sciences -- also struggled with modestly lower spending from pre-commercial small-to-medium businesses, contact research organizations, medical device makers, and cosmetics companies.

However, the broader life sciences industry remained stable, and usage of Veeva's commercial cloud services rose as customers enabled their field reps to maintain virtual contact with doctors. As a result, the net impact of COVID-19 on Veeva's overall business was relatively minor.

Veeva expects its second-quarter revenue to rise between 27% and 28% annually, and for its non-GAAP EPS to rise between 26% and 28%. For the full year, it expects the COVID-19 challenges to reduce the top end of its revenue guidance by just $10 million -- to a range of $1.38 billion to $1.395 billion -- which still implies growth between 25% and 26% compared to fiscal 2020. It expects its full-year non-GAAP EPS to rise between 14% and 16%. Veeva also reiterated its goal of generating $3 billion in annual revenue by fiscal 2025.

Dipping gross margin and a high valuation

Veeva's subscription revenue rose 36% annually during the quarter and accounted for 80% of its top line. The segment's non-GAAP gross margin dipped annually from 85.2% to 85%, partly due to its acquisitions of Physicians and Crossix, which should nonetheless strengthen its ecosystem over the long run.

The rest of Veeva's revenue came from its "professional services and other" business, where its non-GAAP gross margin also contracted from 31.1% to 30.5%. Its total non-GAAP gross margin contracted from 74.9% to 74.2%.

Despite those gross margin headwinds, Veeva's non-GAAP operating margin still expanded from 38.2% to 38.5%, as its travel expenses declined during the COVID-19 crisis.

Those tailwinds should persist throughout the crisis and enable Veeva to remain consistently profitable by both non-GAAP and GAAP measures. However, Veeva currently trades at nearly 90 times forward earnings -- which makes it pricey relative to its earnings growth potential.

So should you buy Veeva's stock at its all-time high?

Veeva has a resilient business and a wide moat. It's barely affected by COVID-19 and other macro headwinds, doesn't face many direct competitors, and serves a growing niche market with plenty of spending power.

Investors can nibble on Veeva at these levels, since it arguably deserves its premium valuation if it can eventually generate $3 billion in annual revenue, but investors could get a better buying opportunity if the macro headwinds finally catch up to this euphoric market.