The stock of Veeva Systems (NYSE:VEEV, 30-year Financials) is believed to be modestly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $254.4 per share and the market cap of $38.5 billion, Veeva Systems stock is estimated to be modestly overvalued. GF Value for Veeva Systems is shown in the chart below.
Because Veeva Systems is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 26.6% over the past three years and is estimated to grow 20.14% annually over the next three to five years.
Link: These companies may deliever higher future returns at reduced risk.
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Veeva Systems has a cash-to-debt ratio of 26.36, which which ranks better than 86% of the companies in the industry of Healthcare Providers & Services. The overall financial strength of Veeva Systems is 7 out of 10, which indicates that the financial strength of Veeva Systems is fair. This is the debt and cash of Veeva Systems over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Veeva Systems has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $1.5 billion and earnings of $2.36 a share. Its operating margin of 25.79% better than 94% of the companies in the industry of Healthcare Providers & Services. Overall, GuruFocus ranks Veeva Systems's profitability as strong. This is the revenue and net income of Veeva Systems over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Veeva Systems's 3-year average revenue growth rate is better than 87% of the companies in the industry of Healthcare Providers & Services. Veeva Systems's 3-year average EBITDA growth rate is 31.2%, which ranks better than 81% of the companies in the industry of Healthcare Providers & Services.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Veeva Systems's ROIC was 29.53, while its WACC came in at 6.22. The historical ROIC vs WACC comparison of Veeva Systems is shown below:
Overall, The stock of Veeva Systems (NYSE:VEEV, 30-year Financials) shows every sign of being modestly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 81% of the companies in the industry of Healthcare Providers & Services. To learn more about Veeva Systems stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
