This Is The Giant in a Niche Industry Cloud
Today’s stock is another example of one of my favorite methods of picking multibagger technology stocks. The “picks and shovels” strategy is extremely helpful in picking up quality stocks that are a great play on rising technology trends. These are the stocks of companies that provide products and services to other players, and which could go up by triple-digits in the process.
A case in point is Veeva Systems Inc (NYSE:VEEV), which is a leading player in the industry cloud space. The company develops software for the pharmaceuticals and life sciences industry, and has been growing by leaps and bounds by bringing innovation to a focused market.
Veeva provides software as a service (SaaS) solutions to this industry and helps companies bring their products to market faster and sell those products more effectively. Veeva’s products also help companies in their research and development efforts, as well as in maintaining compliance with government regulations. The popularity of its products has been pushing VEEV stock higher and higher.
I am bullish on Veeva stock for the following reasons.
Veeva is a picks-and-shovels stock to play in the growing pharma and life sciences industry. The vertical SaaS solutions specific to industries is known as an “Industry Cloud.” The emergence of vertical SaaS has been pioneered by the healthcare industry, and players like Veeva have successfully developed cloud solutions that solve industry-specific problems.
As per the “2016 SaaS Industry Market Report” by Finance Online, vertical SaaS is growing faster than the traditional horizontal SaaS. This is because industry-specific features are in high demand by more businesses because they add strategic value. The focus on vertical SaaS is likely to continue in 2017 and maintain its position as the largest SaaS segment in the future. (Source: “2016 SaaS Industry Market Report: Key Global Trends & Growth Forecasts,” Finance Online, 2016.)
According to Gartner Inc (NYSE:IT), the worldwide public cloud services market is likely to grow 18% in 2017 and will hit almost $250.0 billion as the companies adopt cloud services to scale their businesses, become more agile, and control their costs. (Source: “Gartner says Worldwide Public Cloud Services Market to Grow 18 Percent in 2017,” Gartner Inc, February 22, 2017.)
There could be concerns that operating in a niche space means limited market size. However, this is not the case. Life sciences is a multi-billion-dollar opportunity with a lot of room to grow, and the best part is that Veeva is always expanding its market. It has recently introduced quality control products for the life sciences industry, which are poised to be in high demand. This will be another strong catalyst for Veeva stock.
SaaS applications have generally addressed broad business functions, such as accounting and finance or customer relationship management. This is how salesforce.com, inc. (NYSE:CRM) has become a force to be reckoned with in the cloud space. However, the position is likely to be threatened as the cloud-computing space continues to evolve with more young players emerging as disrupters.
Veeva Systems is one of the foremost contenders in this space, as evident from the phenomenal rise in VEEV stock, which has been on fire on the back of impressive results.
Veeva announced its fiscal Q1 results and posted a revenue jump of 32% year-over-year. Subscription services revenues gained by 33% year-over-year. First-quarter net income increased by 188% year-over-year and the adjusted earnings per share stood at $0.22. Adding to this, the number of customers having multiple “Vault” products increased by about 30 in the quarter. These numbers are well above consensus estimates and, together with strong guidance, bode well for Veeva stock, which is hovering near its all-time highs. (Source: “Veeva Announces Fourth Quarter and Fiscal Year 2017 Results,” Veeva Systems Inc, February 28, 2017.)
Veeva stock has almost doubled over the last year. It has gained over 60% in year-to-date as compared to the S&P 500 index, which has gained about nine percent in the same period. With the continued success of its Vault products and its focus on enhancing its customer base, VEEV stock is on its way to more triple-digit returns in the coming years.
Chart courtesy of StockCharts.com
Veeva’s SaaS applications address key business issues for particular markets, which has made its products extremely popular among pharma and life sciences companies. Veeva is helping them automate their field force and sales reps—as well as their clinical trials—along with providing help in the regulatory area. Veeva’s products are not only helping big companies like Novartis AG (NYSE:NVS) and Pfizer Inc. (NYSE:PFE), but also small biotechs that stand to gain from the whole suite of Veeva products to commercialize their first products.
Veeva also closed a large deal last quarter, and this is the first time a top-20 pharma company has used the company to replace their content management system.
The Bottom Line on Veeva Stock
Veeva boasts more than 520 customers, from top-10 pharma companies to emerging biotechs. The company has been executing its strategy well, and has been posting impressive growth and profits. This has pushed VEEV stock to higher levels.
The company’s cloud products could generate billions of dollars in revenue on the back of high demand from a number of pharma companies and life science startups.
Veeva Systems is one of the best picks-and-shovels stocks with which to play the macro-level trend of cloud-based computing that’s going to continue over the next few decades. The way it has grown through its focus on a particular industry—and has gained strategic importance for its clients—is commendable.
Although the stock is trading near record levels, it has the potential to go higher.