Veeva Systems (VEEV -0.14%) started trading on the New York Stock Exchange in October 2013 at $20 per share. If you could get your hands on the stock at that price on its opening day, a $10,000 investment would've yielded 500 newly minted Veeva shares. Those shares have compounded at 29.8% per year and at the time of this writing are worth about $209 each, or $104,500. That's more than 10 times your money in just shy of nine years.
What's more impressive, the stock has come down more than 35% over the last year from about $330 per share. A year ago, original investors would have earned 42% compounded annually, or 16 times their cost. Even after its mighty fall this year, the stock has yielded breathtaking returns. It has been a model for buy-and-hold investors, but we're always looking forward in the stock world. Can Veeva stock produce another prodigious run?
How did they do it?
Pharmaceutical and biotech companies face an extraordinary amount of regulation. Laws governing drug development and marketing come down from every country and state, and those regulations evolve constantly. The cumbersome process of complying with regulatory burdens can slow the time to market for drugmakers dramatically, especially for multinational corporations. That's where Veeva comes in.
The company splits its offerings into two segments. First, its Veeva Development Cloud includes apps for clinical, regulatory, quality, and safety functions. The platform gives users the functionality to handle data from clinical trials, streamline study execution, and manage documents and compliance reporting.
Second, the Veeva Commercial Cloud segment sells a suite of collaboration software. The suite helps medical departments save, search, and share compliance data globally. Marketing departments can optimize data for media campaigns aimed at patients and healthcare professionals in a compliant and privacy-protected manner.
Sometimes customers hire Veeva for a large swath of functionality. Other times customers start small and add services over time as they realize its value and interconnectedness with other Veeva software. Either way, Veeva's SaaS-based offerings quickly move drugs from concept to sales.
The results have been impressive. Since its fiscal year 2017, Veeva has grown its revenue by 27% annually from $550.5 million to $1.85 billion in fiscal 2022. Over the same time, net income increased from $77.6 million to $427.4 million. That comes to an increase of 41% annually, which has been much faster than revenue growth. The thing is, each time the company adds a new customer or sells an additional service to an existing customer's package, there is little cost to Veeva. So, Veeva becomes more profitable for every dollar of revenue growth.
What about the next nine years?
Veeva notes that its current addressable market is over $13 billion. It has a healthy growth trajectory with $1.85 billion in revenue for the fiscal year ending January 31, 2022, and forecasts revenue of $2.17 billion for fiscal year 2023. It faces competition in the market from cloud companies like IQVIA and Oracle, though no vendor provides a software suite that can match all of Veeva's offerings. As existing and new customers continue to move their technology to the cloud, going with a single vendor like Veeva saves them time and money over dealing with multiple vendors whose software may lack interconnectedness. That's especially important when it comes to critical and time-consuming medical compliance.
After the stock's tumble, investors might be quick to conclude that today's common macro concerns are filtering their way through the company. But that's not the case. In fact, Veeva increased its earnings per share forecast for its full fiscal year 2023 from $4.02 to $4.16.
That would imply the stock is trading at a forward price-to-earnings ratio of over 51 times. The valuation has come down over the last 12 months but may still make value investors cringe. Growth investors may see it as an opportunity to buy a consistent grower at a fraction of its former price.