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Summary

  • The company is expensively valued, based on 2015 earnings estimates and earnings growth potential.
  • The company is in an industry which is experiencing indiscriminate selling.
  • The stock is starting to mount some bullish technical for the short term.

The last time I wrote about Veeva Systems Inc. (NYSE:VEEV), I stated, "Due to the high earnings growth rate expectations, oversold technicals, and excellent balance sheet I will take a chance here and add an additional small batch to my position regardless of the secondary offering." After writing the article, the stock dropped 11.69% versus the 3.41% gain the S&P 500 (NYSEARCA:SPY) posted. I knew I should have stuck with my gut feeling and not bought the stock just because of the issuance of the secondary. Veeva delivers industry-specific cloud based solutions, including data, software and services to the global life sciences industry.

On March 4, 2014, the company reported fourth-quarter earnings of $0.07 per share, which beat the consensus analysts' estimates by $0.01. The company IPO'd back on 17th October, 2013, and is down 47.95% and losing to the S&P 500, which has gained 9.08% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if right now is a good time to purchase more of the stock for my portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 138.14, which is expensively priced, but I mainly like to purchase a stock based on where the company is going in the future, as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 58.96 is currently expensively priced for the future in terms of the right here, right now. The 1-year PEG ratio (3.77), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced, based on a 1-year EPS growth rate of 36.67%. The company has great near-term future earnings growth potential, with a projected EPS growth rate of 36.67%. In addition, the company has great long-term future earnings growth potential, with a projected EPS growth rate of 27.73%. Below is a comparison table of the fundamental metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

12Mar14

32.97

299.73

100.83

0.33

4.90

8.27

36.25

12Apr14

21.90

128.82

66.77

0.33

4.90

3.99

32.26

18May14

19.34

138.14

58.96

0.33

4.90

3.77

36.67

Financials

On a financial basis, the things I look for in general are the dividend payouts, return on assets, equity and investment. The company does not sport a dividend to speak of, but is sporting return on assets, equity and investment values of 4.8%, 7.1% and 8.7%, respectively, which are all respectable values. In this particular instance, I will forgo the dividend aspect of the financials, because the stock is in my growth portfolio; and in the growth portfolio, a stock does not have to have a dividend. Below is a comparison table of the financial metrics for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

12Mar14

0

0

5.0

7.4

8.7

12Apr14

0

0

4.8

7.1

8.7

18May14

0

0

4.8

7.1

8.7

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling in middle-ground territory, with a current value of 40.89 with upward trajectory since 9th May, 2014. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line, with the divergence bars starting to increase in height, indicating that bullish momentum is starting to form. As for the stock price itself ($19.34), I'm looking at $22.04 to act as resistance and $15.02 to act as support for a risk/reward ratio which plays out to be -22.34% to 13.96%.

Conclusion

Cloud software stocks are definitely not the place to be lately, whether they are newly-minted companies like Veeva or established ones like Cerner (NASDAQ:CERN). Fundamentally, this company is expensively valued on next year's earnings estimates and on earnings growth potential, while short and long-term earnings growth expectations are excellent. Financially, there isn't a dividend to speak of, but the financial efficiency ratios are decent. Technically, the stock looks to have bullish technicals. Due to the bullish technicals, high earnings growth potential and its being one of the only companies in the industry with actual earnings, I will be adding a small position right here.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am long VEEV, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Is Veeva Systems Still A Falling Knife?