Stocks from all sectors have been pummeled in 2022. Those operating in the tech space have seen even more pain, given the fact that many are emerging players in their respective industries, posing greater investment risk than a more stable company. 

That said, even stable tech stocks have been crushed as of late. Both Alphabet and Microsoft have fallen over 31% year-to-date. Other stable stocks that have been hurt this year include Veeva Systems (VEEV -1.27%). Despite its hard-to-disrupt dominance in the life sciences software industry, this top dog is down 33% in 2022.

While most investors might be scared off by this significant drop, long-term investors should see this dip as an opportunity to buy a high-quality business at a bargain. In fact, Veeva's current valuation is the cheapest the company has seen in years. Here's why you should take a closer look at Veeva. 

Doctor examining a specimen under a microscope.

Image source: Getty Images.

Veeva stock is relatively cheap

Veeva Systems trades at a price-to-free-cash-flow multiple of roughly 37. While that might seem expensive at first blush, it's necessary to put this into context. Over Veeva's entire life as a public company, dating back to 2013, shares have traded this low just one other time (excluding earlier this year): in 2016.

Therefore, you would be paying the same valuation you would have in 2016 when Veeva had only $544 million in annual revenue and $69 million in annual net income. Comparatively, Veeva earned $534 million in revenue and $90.6 million in net income in just the last fiscal quarter.

However, this isn't to say that investors shouldn't watch valuation on an absolute basis. Veeva is a leading cloud services provider in the life sciences industry, providing tools for everything from trial data management to regulatory compliance to customer analytics. This has led to immense success, but Veeva is now starting to saturate the market. As a result, growth is slowing. In fiscal Q2 2023, which ended July 31, 2022, Veeva only saw 17% revenue growth. Therefore, if the company's valuation gets too far out of hand, there isn't as much expansion potential to rationalize it as there would be for a small start-up.

The company continues to execute effectively

This saturation, however, has been driven by sustainable competitive advantages. Yes, Veeva is the leader in the space with more than 350 customers using its Clinical suite, 250 customers using its Regulatory suite, and 175 using tools in its Quality suite as of 2021. But it also has the benefit of immense switching costs. After all, if a pharmaceutical company begins to rely on Veeva for data storage and other back-end operations, it would be hard to shift away to another platform. 

As a result, Veeva has seen incredible operating leverage. As the company has scaled, operating income and free cash flow have exploded: Since going public, revenue has improved by over 969%. However, free cash flow has rocketed 1,810% higher, and operating income soared 1,190% over the same period.

Importantly, Veeva has retained these impressive profits. In Q2 2023, Veeva had a non-GAAP operating margin of almost 38%, which is predicted to continue into Q3. Veeva continues to execute and squeeze the juice out of its lucrative competitive position. 

This a superb opportunity

While there are concerns about how much room there is to run moving forward, management doesn't seem concerned. Last year, management pinned the company's total addressable market at $13 billion -- far higher than the $2 billion in revenue the company has generated over the trailing 12 months.

This stable stock is down notably, despite continued execution. That sounds like a recipe for a great long-term investment. Given today's rock-bottom valuation, Veeva looks like a fantastic place for long-term investors to put some money to work.