Health tech company Veeva Systems (VEEV +0.35%) has been among the hottest stocks to buy of late. In three months, its shares have popped more than 30%, while the S&P 500 has risen by just over 1%. It's a near-term win for the stock, which is now around $230 -- but that's still down from $256 at the beginning of the year.
What's been driving the improved results for this healthcare stock, and is Veeva Systems a good company to invest in today?
NYSE: VEEV
Key Data Points
The stock got a big boost following earnings
On June 1, Veeva Systems released its quarterly earnings numbers, which led to some bullishness in its shares. For the first quarter of fiscal 2023 (ended April 30), Veeva's sales of $505.1 million rose by 16% year-over-year. The company makes a good chunk of revenue from recurring subscriptions, and they totaled $402.6 million and grew 18% from the same period last year.
Overall, those are encouraging numbers for the company, which seeks to help businesses in the life sciences industry with cloud-based solutions and digitizing their operations. The company also notes that with the results, its annual revenue run rate is now $2 billion. But Veeva is expecting more than that, projecting sales this year to come in around $2.2 billion. For the year ended Jan. 31, Veeva's sales came in under $1.9 billion.
Although this isn't ground-breaking growth, the company does believe it's still only scratching the surface in terms of potential. It estimates that it has grabbed only 15% of its total addressable market.
Veeva's stock has been soaring ever since
Despite no major filing or press release since earnings, the stock has been climbing as a result of that momentum. That's despite the fact that in the previous period Veeva's sales grew at an even higher rate -- 22%.
However, with many companies delivering underwhelming growth numbers of late, Veeva could prove to be one of the more resilient ones. Given how many companies are digitizing their businesses, you could argue that it's unstoppable given the long-term potential the company has in the healthcare industry.
Should valuation be cause for concern?
One big problem I have with the stock is that it trades at an egregious premium. Even though its share price has been falling this year, it still trades at a whopping 56 times its future earnings. By comparison, the average stock in the S&P 500 only trades at a multiple of 18. Investors are looking toward the future, however, which is fine -- and if you're holding for five-plus years, there's an opportunity to earn a great return here.
But even if I were thinking of buying Veeva, I'd be tempted to wait as future quarters could underwhelm and derail its otherwise promising growth trajectory. Take Teladoc Health, for example. That company's CEO noted that while its pipeline remains strong, customers have been delaying making decisions amid inflation. While both telehealth and the digitization of healthcare are encouraging long-term trends, both stocks could slide as the year goes on if customers remain hesitant to pull the trigger on big buying decisions.
And for what it's worth, Teladoc noted those developments on a much more recent earnings call in July -- nearly two months after Veeva last updated its shareholders.
Why I wouldn't buy Veeva stock today
Veeva looks promising over the long term, but I would suggest waiting until after the company releases earnings on Aug. 31 to see if it is also seeing the same types of resistance among new customers. If that's the case, the current quarter (plus future ones) could be underwhelming, which could send the stock lower in the months ahead.
