We came across a bullish thesis on Veeva Systems Inc. (VEEV) on High Growth Investing’s Substack by Stefan Waldhauser. In this article we will summarize the bulls’ thesis on VEEV. Veeva Systems Inc. share was trading at $223.9 as of Sept 11th.
A network of interconnected data points representing cloud-based software solutions.
Veeva Systems, a prominent provider of cloud-based solutions for the pharmaceutical and biotech industries, is currently undervalued by the market despite its leading position and solid performance. The company has been listed on Nasdaq since 2013, with its stock reaching historic highs over $330 in 2021 before falling nearly 50% due to broader SaaS market trends. Prior to its IPO, Veeva was recognized as an excellent enterprise content management system, though its initial valuation seemed excessive. Following a decade of market fluctuations, Veeva now presents a compelling investment opportunity.
Veeva’s total addressable market (TAM) in life sciences software is estimated at $20 billion, with the company capturing approximately 12% of this market. This specialized vertical market, particularly in regulatory environments like pharmaceuticals, poses significant barriers to entry and high switching costs, ensuring that Veeva’s solutions, which have an average lifespan of over 15 years, are deeply embedded and expensive to replace. The company derives 80% of its revenue from recurring software subscriptions, with the remaining 20% coming from services related to the integration and migration of its software. Veeva has expanded its offerings to include a variety of pre-built applications based on its Veeva Vault platform, covering development and commercial needs in the life sciences sector. The company is currently transitioning its CRM solutions from Salesforce to its own platform, which is expected to improve gross margins by reducing reliance on costly OEM licenses.
Despite recent growth challenges, with FY24 revenues increasing by 10% to $2.364 billion and FY25 growth projected at around 15% to over $2.7 billion, Veeva remains highly profitable. The company has consistently achieved impressive free cash flow margins, recently exceeding 45%, and boasts a strong Rule-of-40 score, reflecting efficient growth. Veeva’s operating income was $843 million for FY24, with expectations of surpassing $1 billion in FY25. Its net margins are above 20%, and with minimal dilution from stock-based compensation, Veeva maintains a healthy financial position, holding nearly $5 billion in cash and no debt.
Currently trading around 47% below its peak, Veeva’s stock appears undervalued based on its cash flow generation, with an Enterprise Value to Free Cash Flow (EV/FCF) ratio of 21 and an EV/Sales ratio near single digits. Although the P/E ratio exceeds 50, indicating a high valuation, Veeva’s strong fundamentals and growth potential make it an attractive investment. The expectation is that Veeva will exceed its previous highs by 2030, driven by ongoing robust cash flow growth and strategic execution.
Veeva Systems Inc. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 50 hedge fund portfolios held VEEV at the end of the second quarter which was 46 in the previous quarter. While we acknowledge the risk and potential of VEEV as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than VEEV but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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