Shares of Veeva Systems (VEEV 1.00%) leapt about 6% on Thursday, March 2, following a fiscal-fourth-quarter earnings report that management announced the previous afternoon. The cloud software provider reported earnings that exceeded expectations during the three months that ended January 31.
The stock would have climbed even further, but management issued somewhat disappointing forward-looking earnings expectations.
| Veeva's Guidance | Wall Street's Prediction | |
|---|---|---|
| FQ1 2024 adjusted EPS | Between $0.79 and $0.80 | $1.00 |
| Fiscal 2024 adjusted EPS | Approximately $4.33 | $4.46 |
FQ1: fiscal first quarter; EPS: earnings per share; data source: Veeva Systems.
Is Veeva Systems a good stock to buy now, or should investors look for better places to put their money? Here's what you should know, starting with the company's longer-term outlook.
Reasons to buy Veeva Systems now
Generally, when a company like Veeva Systems issues softer forward guidance than Wall Street has predicted, its stock tanks. This stock avoided falling in response to weak guidance for its current fiscal year by issuing an outlook for its fiscal 2025.
| Fiscal 2023 Result | Fiscal 2025 Guidance | Change | |
|---|---|---|---|
| Total revenue | $2.15 billion | At least $2.8 billion | 30% |
| Adjusted operating income | $830.5 million | At least $1.0 billion | 20% |
Data source: Veeva Systems.
Veeva felt it necessary to issue an outlook for fiscal 2025 because it's currently standardizing customer contracts to include termination for convenience rights. This temporary headwind will pinch the company's performance in the short term, but it allows for a shift to multiyear contracts and more predictable cash flows over the long run.
Veeva Systems develops and markets cloud-based solutions specific to drugmakers and other life science industry players. For example, the Veeva Vault suite of services helps companies track heaps of data thrown off by laboratory work and clinical trials. The company also markets customer relationship management tools designed for the highly regulated world of pharmaceutical sales.
Showing regulators that a drug used in clinical trials is identical to the product a company intends to manufacture at scale is no easy task. There are smaller software vendors out there with products that start-up biotechs can piece together to form a viable solution. But Veeva has grown steadily because it's a lot easier for drugmakers to simply hire the larger provider and stick with it as they grow. A comprehensive suite of tools helped Veeva finish fiscal 2023 with 1,388 customers, which was 14% more than it had a year earlier.
There are no guarantees, but we can reasonably expect Veeva to maintain its leadership position. This well-run company expects at least $1 billion in adjusted operating income for the year ending January 31, 2025. That gives it plenty of opportunities to acquire any competitors that pop up long before they can pose a serious threat.
A big reason to remain cautious
I'm not the first to notice Veeva Systems has a good thing going. Other investors expecting steady growth have pushed the stock up to a price that is 37.2 times forward-looking earnings estimates. That earnings multiple is more than double that of the average stock in the benchmark S&P 500 index.
This growth stock's high valuation has a lot of expectations already baked in. If investors get the slightest hint that the company might not achieve $1 billion in adjusted operating income in fiscal 2025, the stock could fall hard.
There aren't any specific reasons to assume Veeva won't be able to meet its own expectations. That said, anyone buying at recent prices should take care to make this stock a relatively small part of a well-diversified portfolio.
