Shares of Veeva Systems (VEEV -1.92%) were falling today as the health tech company got swept up in the broader market sell-off.
Though there was no company-specific news out on Veeva, rising treasury yields today and the specter of the Fed's interest rate increase tomorrow were enough to push the stock lower.
Shares closed the day down 2.6%, while the S&P 500 lost 1.1%.
The Federal Open Market Committee, which determines the federal funds rate, began its two-day meeting today and is expected to announce a 75-basis-point rate hike tomorrow, which will bring the benchmark rate to 3%-3.25%.
In today's sell-off, the market seems to be indicating it expects more doom and gloom from Federal Reserve Chair Jerome Powell at tomorrow's press conference as treasury yields rose and growth stocks like Veeva fell back. The benchmark 10-Year Treasury Yield finished up 2.3% to close at 3.57%, its highest mark since 2011. That's a sign that investors are steeling themselves for a sustained high-interest rate environment.
Growth stocks like Veeva, which provides cloud software for the life sciences industry, tend to be more sensitive to rising interest rates and the potential recession that they could cause.
Though Veeva is profitable, it trades at a high earnings multiple, and investors value earnings in the future less when interest rates rise since rising interest rates make the discount rate in valuations go up.
Veeva's most recent quarterly results were solid, in line with analyst expectations as revenue grew 17%. However, guidance for the third quarter was below expectations, and the company said it lowered its full-year guidance slightly due to a stronger dollar and macroeconomic headwinds, which are leading to lengthening sales cycles.
That's a sign the stock should continue to be sensitive to the macroeconomic climate, including tomorrow's rate decision.
The good news for Veeva investors is that healthcare is generally a recession-proof industry, and the stock is more reasonably priced than most of its software-as-a-service (SaaS) peers, trading at a P/E ratio of 40 based on this year's expected earnings.
At that valuation, a sustained sell-off looks like a good buying opportunity.