Is this beaten-down SaaS stock a value play or a value trap?

Despite the rapid adoption of its healthcare-oriented software and data analysis services, Wall Street has clearly soured on Veeva Systems ‘ ( VEEV -4.35%) shares this year. Over the course of 2022, this former high-flying stock has given back a large chunk of its stellar gains over the prior two years in response to a tougher economic climate, geopolitical unrest, and a general flight to safety by nervous investors.

Is this falling knife worth catching? Here is the bull-vs.-bear argument for buying this beaten-down growth stock right now. Image Source: Getty Images. Veeva Systems’ business still looks very sturdy

Keith Noonan : Like many other software-as-a-service (SaaS) companies, Veeva Systems has seen its valuation depressed as high inflation and rising interest rates have caused investors to become much more risk averse . The company’s recently published second-quarter results also disappointed the market, and the stock has now lost roughly half of its value since hitting a lifetime high in August 2021.

While Veeva’s 17% year-over-year sales growth marked a substantial deceleration from the 29% revenue expansion it posted in last year’s second quarter, it’s not surprising to see weaker expansion amid the more challenging economic backdrop and market maturation for some of its core life-science software products. On the other hand, the business maintains a leadership position in its niche corner of the cloud software market, and the combination of quality software and high-switching costs suggests the company’s overall moat remains strong.

Veeva Systems is still increasing revenue, and the roughly 85% gross profit margin across the first half of the current fiscal year sets the stage for a return to substantial earnings expansion if macroeconomic conditions begin to improve and growth initiatives are successful. The company is gearing up to launch offerings in new product categories, and efforts to expand in clinical data management solutions and direct-to-patient could have big payoffs over the long term.

With shares trading at roughly 41 times this year’s expected earnings, Veeva Systems still has a growth-dependent valuation, but the company’s business continues to look fairly sturdy and has avenues to getting back to more impressive sales and earnings performance.

George Budwell : Admittedly, Veeva Systems’ subscription-based life science services are an increasingly popular tool within the industry. This SaaS company’s recent 17% rise in year-over-year sales is no accident. What’s more, Veeva, per its own internal estimates, expects sales to rise at a blistering compound annual growth rate of 11.8% over the next three consecutive years. That’s definitely a top-shelf level of revenue growth for a large-cap healthcare company.

This double-digit revenue growth doesn’t necessarily make its stock a buy, however. Two key issues could continue to push its stock lower for the remainder of the year:

> Veeva’s core target market is likely to undergo a wave of belt-tightening as a result of rising interest rates and falling share prices. The Federal Reserve, after all, plans to continue ramping up interest rates until inflation is under control. Moreover, a whopping 61% of all publicly traded biopharma stocks have lost over a third of their value this year. This less-than-favorable economic climate for these capital-intensive business doesn’t bode well for Veeva’s near-term growth prospects.

Even after losing nearly 30% of its value this year, Veeva’s stock is still trading at an eye-catching 9.27 times projected 2025 revenue. This premium valuation may be hard to justify if the company’s customer base does indeed have to rein in spending in a significant way over the next year or so.

All told, Veeva’s stock ought to be a winning play over the long term. After all, the company should be able to capitalize on the industry’s increasing use of cutting-edge software platforms to streamline operations and reduce costs. That being said, investors may still want to wait for a more compelling entry point before buying shares of this premium-heavy healthcare stock. Should you invest $1,000 in Veeva Systems Inc. right now?

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source Veeva Systems Stock: Bull vs. Bear

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