Veeva Systems Inc (NYSE: VEEV), a healthcare firm with a market capitalization of $10.3 billion, saw its share price increase by 30.7% over the prior three months. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. Is there still an opportunity here to buy? Let’s examine Veeva's valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What's The Opportunity In Veeva?
Veeva appears to be overvalued by -34.0% at the moment, based on 8 separate valuation models. The stock is currently trading at $71.13 on the market compared to our average intrinsic value of $46.94. This means that the buying opportunity has probably disappeared for now.
| Analysis | Model Fair Value | Upside (Downside) |
|---|---|---|
| 10-yr DCF Revenue Exit | $49.95 | -29.8% |
| 5-yr DCF Revenue Exit | $56.87 | -20.0% |
| Peer Revenue Multiples | $42.61 | -40.1% |
| 10-yr DCF EBITDA Exit | $44.51 | -37.4% |
| 5-yr DCF EBITDA Exit | $48.24 | -32.2% |
| 10-yr DCF Growth Exit | $41.12 | -42.2% |
| 5-yr DCF Growth Exit | $43.60 | -38.7% |
| Peer P/E Multiples | $48.65 | -31.6% |
| Average | $46.94 | -34.0% |
Click on any of the analyses above to view the latest model with real-time data.
However, will there be another opportunity to buy low in the future? Given that Veeva’s stock is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) could mean the price can sink lower, giving investors another chance to buy in the future. This is based on its beta of 1.26, which is a good indicator for share price volatility.
Can We Expect Growth From Veeva?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matters the most, a more compelling investment thesis would be high growth potential at a cheap price.
source: finbox.io data explorer
Veeva's revenue growth is expected to average 14.8% over the next five fiscal years, indicating a solid future ahead. Unless expenses grow at the same level, or higher, this top-line growth should lead to robust cash flows, feeding into a higher share value.
What This Means For Investors
Growth investors typically look to invest in companies that are expanding sales, gaining market share and building customer bases. On the other hand, value investors often argue that the most successful investments are in companies that deliver the highest cash flows while trading at the lowest valuation.
But why not put those hands together? A company that has both growth and value characteristics would certainly make the most attractive investment. So what did we find out about Veeva?
Veeva has positioned itself so that double-digit growth appears to be a reasonable assumption for the foreseeable future. However, this growth does not look highly attractive at current trading levels. As such, investors may want to hold off on buying or adding to their VEEV position for the time being.
It is important to note that there are a variety of other fundamental factors that I have not taken into consideration in this article. If you have not done so already, I highly recommend that you complete your research on Veeva by taking a look at the following:
Valuation Metrics: what is Veeva's free cash flow yield and how does it compare to its publicly traded peers? This metric measures the amount of free cash flow for each dollar of equity (market capitalization). Analyze the free cash flow yield here.
Forecast Metrics: what is Veeva's projected EBITDA margin? Is the company expected to improve its profitability going forward? Analyze the company's projected EBITDA margin here.
Efficiency Metrics: return on equity is used to measure the return that a firm generates on the book value of common equity. View Veeva's return on equity here.
Author: Andy Pai
Expertise: financial modeling, mergers & acquisitions
Andy is also a founder at finbox.io, where he's focused on building tools that make it faster and easier for investors to do investment research. Andy's background is in investment banking where he led the analysis on over 50 board advisory engagements involving mergers and acquisitions, fairness opinions and solvency opinions. Some of his board advisory highlights:
- Sears Holdings Corp.'s $620 mm spin-off via rights offering of Sears Outlet, Hometown Stores and Sears Hardware Stores.
- Cerberus Capital Management's $3.3 bn acquisition of SUPERVALU Inc.'s New Albertsons, Inc. assets.
Andy can be reached at [email protected].
As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.
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