Since its 2013 IPO, Veeva Systems' (VEEV 2.21%) returns have been strong -- the company has posted a compound annual growth rate (CAGR) of 13.6% through this period. However, the stock now faces headwinds, including significant competition in its niche of the cloud market. To turn average investors into multimillionaires, Veeva Systems would need to perform well over a few decades, as it has since 2013. Does the company have what it takes?
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Why Veeva Systems might pull it off
Veeva Systems targets the life sciences industry and offers a suite of cloud solutions tailored to its needs. The company chose its niche well: Demand for products like innovative drugs and medical devices will only increase in the long run, along with higher consumer spending and an aging worldwide population. In other words, Veeva operates in an expanding market, which could help it succeed over the long run as it taps into new opportunities. The company's leadership in this corner of the cloud industry is also noteworthy. Veeva Systems' customers include 15 of the top 20 biopharma companies.
NYSE: VEEV
Key Data Points
Veeva Systems benefits from switching costs, since its clients depend on its services for critical everyday activities. The stakes are especially high for biotech and pharmaceutical companies that use its platform to help store and manage clinical trial data, protect patient privacy, and comply with the many regulations imposed on corporations in this sector. Veeva Systems' financial results have generally been strong, even though revenue growth has slowed over the years, as it tends to do as companies become more mature.
VEEV Revenue (TTM) data by YCharts
But the company still sees ample white space ahead. Veeva Systems estimates its current total addressable market at about $20 billion (no doubt this will grow over time, along with the life sciences sector). Meanwhile, the company reported revenue of just $3.2 billion over the trailing-12-month period. Veeva Systems' moat can help it grab a decent share of this remaining market, even as competition intensifies, leading to strong top and bottom-line growth over the next five years and beyond.
Don't go all in on one stock
It would take a compound annual growth rate of 11.82% to turn a $70,000 investment into $2 million in 30 years. That's slightly less than what Veeva Systems has recorded over the past 13 years, but it is still very competitive and no easy feat to achieve. My view is that Veeva Systems could help investors reach this goal, given its leadership in its core market, strong competitive edge, and slow expansion into newer markets (cosmetics, consumer packaged goods, chemicals) that will take a while to meaningfully impact growth but could pay off down the road.
Investors building a well-diversified portfolio designed to achieve strong returns over the long run can add Veeva Systems to their holdings. The company can help such a portfolio turn its owner into a multimillionaire, given enough time and a disciplined approach.
