Veeva Systems Inc (NYSE:VEEV) is one of 2017’s standout stocks, even if the company itself doesn’t exactly … well, stand out. VEEV stock is up 60% year-to-date, performing better than well-known tech plays such as Alphabet Inc (NASDAQ:GOOGL,NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB).
But Veeva itself isn’t very well-known, not even comparatively speaking within its own industry: cloud software. Instead, operators like Salesforce.com, inc. (NYSE:CRM) get much of the buzz and attention.
So, what is Veeva Systems? And more importantly to investors, can the momentum in VEEV stock continue?
To answer these questions, let’s start with a little background.
The Start of Veeva Systems
It was 2007, and the cloud industry was still in the early stages. Peter Gassner — a former alum of Salesforce, PeopleSoft and International Business Machines Corp. (NYSE:IBM) — saw an enormous opportunity to target the life sciences industry, which was saddled with legacy technologies such as client-server systems and on-promise software.
Gassner knew that the cloud was the silver bullet. He saw the powers of this technology while he worked for Salesforce.
But his strategy also went against the conventions of Silicon Valley. He raised only a modest amount of venture capital and focused on getting to profitability early on. What’s more, Gassner did not reinvent the wheel — he struck a deal with Salesforce to capitalize the platform to build the core technology for VEEV. This had several key advantages, including lower costs, quicker time-to-market and credibility with customers.
And by focusing on one industry, Veeva benefited from becoming a strategic partner to customers. The company was turning into a valuable a source of domain expertise and had a great sense of understanding the pain points.
All this helps to explain why VEEV has had plenty of traction with customer adoption.
VEEV Stock Going Forward
Over the years, Veeva Systems has added offerings like helping to sell and market quicker, streamlining the onerous clinical regulatory process, understanding data and improving content management. That has led to a client roster that includes pharma giants like Pfizer Inc. (NYSE:PFE), Merck & Co., Inc. (NYSE:MRK) and Amgen, Inc. (NASDAQ:AMGN).
Some investors are concerned that Veeva is too reliant on healthcare — whether there are enough companies to sell to, and how much competition could cramp the space?/
They’re legitimate questions, but not pressing concerns.
The lifesciences market spends a staggering $55 billion on IT spending every year. To put things into perspective, Veeva’s full-year forecast calls for revenues to range from $665 million and $669 million, with non-GAAP operating income between $191 and $195 million. So yes, there’s plenty of runway in the existing market.
Veeva also has been able to repurpose its technology into adjacent categories. Just some include manufacturing and various industries that must deal with high levels of regulation. Note that during the latest quarter, Veeva landed a top-five consumer packaged goods company.
What about valuation? Is VEEV stock too expensive now after this run-up? Well, it’s certainly pricey at a forward price-to-earnings ratio of 65.
But then, enterprise cloud companies can maintain lofty valuations so long as the growth ramp continues. Some notable examples include CRM, Workday Inc (NYSE:WDAY) and ServiceNow Inc (NYSE:NOW). These kinds of companies not only target large markets but also have powerful moats thanks to their mission-critical technologies.
The same goes for Veeva Systems. The returns on VEEV stock may not be as torrid as they have been this year — let’s face it, the markets have been fairly bullish — but the company can keep rising from here. And with additional help from a prolonged bull run, it might even finish off the doubler it’s working on in 2017.
But even if it doesn’t, Veeva is still solid for the long haul.
Tom Taulli runs the InvestorPlace blog IPO Playbook and is the author of various books, including All About Commodities, All About Short Selling and High-Profit IPO Strategies. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
