Veeva Systems: This Is Not A Growth Stock Environment

Apr. 26, 2022 11:14 PM ETVeeva Systems Inc. (VEEV)11 Comments
Hale Stewart profile picture
Hale Stewart
10.57K Followers

Summary

  • Veeva is still a great company.
  • Unfortunately, the macroeconomic backdrop is darkening.
  • Veeva's chart is still terrible.

Veeva Systems sign near cloud-computing company focused on pharmaceutical and life sciences industry applications

Michael Vi/iStock Editorial via Getty Images

I first wrote about Veeva Systems (NYSE:VEEV) on March 6. It's a great growth story:

  • The company provides cloud-based software for the life sciences industry.
  • Growth has been great
  • Margins increased during the last 10 years, indicating that the company was achieving economies of scale
  • The company had great cash flow.

But while the fundamentals were great, the charts were terrible.

The weekly chart (left) shows that the stock hit a multi-year high last summer. Since then, it's been declining. The daily chart (right) shows that the stock is in an accelerated downtrend. There have been several gaps lower, one recently.

Veeva (VEEV) is a great growth story stock. Unfortunately, it's in a sharp sell-off. Wait for a bottom to form and then start buying.

Remember the basic formula: fundamentals tell us what to buy. That's clearly the case with VEEV. Charts tell us when to buy. At the beginning of March, the technicals were terrible.

Unfortunately for us since then, the fundamentals have worsened as has the chart, keeping VEEV on the sell list.

VEEV is a pure growth story; it needs strong economic performance to achieve its sales results. Unfortunately, the macroeconomic backdrop is worsening. Let's start with the Federal Reserve. All the Fed presidents who have spoken since the last meeting have endorsed higher rates. Most have stated they could support a 50-basis point hike, and one, (Bullard) is on the record as saying a 75-basis point increase should be considered.

As a result, interest rates have increased:

Treasury yields for years 1-10

Treasury yields for years 1-10 (FRED)

All treasury yields in the 1-10-year range have risen. This will increase the cost of capital, which slows growth.

We're also starting to see rising yields in the commercial paper markets.

30, 60, and 90-day nonfinancial commercial paper yields

30, 60, and 90-day nonfinancial commercial paper yields (FRED)

The 30, 60, and 90-day commercial paper yields on non-financial corporate paper have all risen ...

30, 60, and 90-day commercial paper yields on financial paper

30, 60, and 90-day commercial paper yields on financial paper (FRED)

... as have the rates on financial commercial paper.

These yields typically spike 12-24 months before a recession, creating liquidity issues.

And we're seeing other areas of caution in the primary economic indicators:

Long-leading, leading, and coincidental indicators

Long-leading, leading, and coincidental indicators (Data from FRED; author's tabulations)

The above table is my short-hand tabulation of the long-leading, leading, and coincidental indicators. All of the financial numbers are now colored red, indicating they are warning us of an upcoming economic slowdown.

Now, let's turn to the markets' internals.

EMA picture for the four main index-tracking ETFs

EMA picture for the four main index-tracking ETFs (StockCharts; author's tabulations)

The above table shows the EMA picture for the four main index-tracking ETFs. I use the exponential averages since they give more weight to recent data. Notice that most EMAs are bearish.

The markets are performing poorly since the start of the year:

YTD SPY, QQQ, DIA, and IWM

YTD SPY, QQQ, DIA, and IWM (StockCharts)

Year to date, all the charts are negative. There's only been one rally at the end of March. All other time periods are negative.

All of this is negatively impacting VEEV's chart.

Weekly and daily chart for VEEV

Weekly and daily chart for VEEV (StockCharts)

The weekly chart (left) has been in a downtrend since October. The chart on the right shows (daily) shows a very bearish picture. All the EMAs are moving lower; the shorter EMAs are below the longer EMAs; prices are below all the EMAs.

VEEV is a great company. But its business model is more suited to the front-end of an economic expansion. While I don't think a recession is in the cards, we're clearly in a slower growth environment that favors larger, more established companies. That is very apparent from the charts, which are in a solid downtrend.

Keep your eyes open, but, for now, look elsewhere.

This article was written by

Hale Stewart profile picture
10.57K Followers
Hale Stewart spent 5 years as a bond broker in the late 1990s before returning to law school in the early 2000s. He is currently a tax lawyer in Houston, Texas. He has an LLM in domestic and international taxation (MagnaCumLaude). He is the author of the book The Lifetime Income Security Solution. Follow me on Twitter at @originalbonddadYou can read his legal analysis on his law office's blog.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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.

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