Bulls and bears have been locked in a duel over Veeva Sytems (VEEV 2.39%) stock over the past several years. The bulls dominated for a while after the stock hit an all-time low of $17 per share in 2014. It surged to a peak of about $344 in August 2021 driven partly by pandemic-fueled healthcare spending and interest in tech and healthcare stocks.
But the bears have been in control lately and the stock has fallen to $180 as of this writing. Let's look at the case from both sides.
The bulls love Veeva's growth prospects
Veeva bulls point to the company's rampant growth over the past several years. The company reported $129.5 million in revenue in fiscal 2013, which ended in January 2013. Since then, revenue has seen a compound annual growth rate of 34%, to reach $1.85 billion in the fiscal year that ended in January 2022.
Veeva's net income has grown even faster. Over the same time frame, net income saw a CAGR of over 41%, from $18.8 million to over $427.3 million.
Veeva operates in the highly complex and constantly evolving industry of medical compliance. The company offers cloud-based software solutions to pharma and biotech companies, allowing researchers to collaborate, file documents with regulators, and conduct clinical trials. In addition, its software suite helps sales teams optimize data for media campaigns aimed at patients and healthcare professionals. Complying with all the rules is one of the most time-consuming things Veeva's customers deal with, and by using Veeva's services, those customers can reduce their time to market and start selling their drugs more quickly.
Providing the solutions that Veeva offers is a monumental undertaking, especially considering that many of its customers do business in multiple countries with differing medical regulations. It's this complexity that creates extremely high barriers for new competition and gives Veeva a moat to protect it while it grows.
Given Veeva's history of success and extensive customer list -- including both massive, well-known companies and young, emerging biotechs -- it can quickly scale any acquisitions or new products. That's an excellent proposition for long-term growth investors. For instance, the company is just beginning to roll out a new data analytics segment, which closed FY22 with just 10 customers but three months later had added eight new customers to the Veeva Link data service and introduced four new products that the company believes could roughly double Veeva Link's market. During the second fiscal quarter, the company added 10 more Veeva Link customers.
Image source: Getty Images.
The bears focus on slowing revenue growth and valuation
The bears, meanwhile, are pointing to sputtering short-term growth. In the fiscal quarter ended July 31, Veeva reported adjusted earnings per share of $0.56 -- which missed Wall Street estimates -- and lowered revenue guidance for the full year to a range of $2.14 billion to $2.145 billion, implying 16% growth year over year, which is significantly below its long-term rate. The company notched year-over-year revenue growth of 26% in the most recent fiscal year.
Bears also point to the stock's sky-high valuation. Despite a 40% fall in Veeva's stock price over the last year, it still trades at a price-to-earnings ratio (P/E) of over 70. That means it's still trading at a considerable premium, especially if the growth is cooling. Compare that to iShares S&P 500 Growth ETF, which carries a P/E ratio of 24.
NYSE: VEEV
Key Data Points
Now what?
Though the bears are calling out the revenue guidance reduction as a cause for concern, Veeva management points out that half of the reduction is due to foreign exchange impacts due to the strong U.S. dollar. The other half is due to lower spending due to macroeconomic uncertainty. Both items are unrelated to the long-term growth potential of the company. And management is confident that it can reach its goal of $3 billion in revenue by 2025.
The bulls are quick to point out Veeva's profitability. Though revenue guidance has come down slightly, the company has increased its earnings per share guidance twice this year. At the end of its fiscal 2022, Veeva estimated $4.02 in adjusted earnings per share for fiscal 2023, which will end Jan. 31, 2023. By the last fiscal quarter, it bumped that number up to $4.17.
With the stock currently trading at about $172 per share, guidance implies a forward price-to-earnings ratio of roughly 41. That's a considerably more attractive valuation than the one the bears are concerned about.
Veeva's long-term growth prospects are intact and the company is ahead of its 2025 goals. Bears might find the valuation unpalatable, but Veeva is a growth company and investors looking for big potential should see the stock's 30% year-to-date dip as an opportunity to add shares.
