Veeva continues to show a combination of growth and resilience. Is it time to buy the stock?

As a leading healthcare software company, VEEV Sistema (VEEV 0.51%) has delivered solid growth while operating in a defensive industry. The stock has had a good year, up more than 10%, but has underperformed the market over the past five years, even as management takes the business in a new direction.

Let’s look at the company’s latest results and see if now is the time to buy the stock.

Strong revenue growth

For its fiscal second quarter ended in July, Veeva’s revenue rose 15% to $676.2 million, which was well above the $666 million to $669 million it had expected . More importantly, subscription revenue rose 19% to $561.3 million, beating the forecast of $554 million. Service revenue fell 4% to $114.9 million. Subscription revenue is high-margin and recurring, while service revenue is lower-margin and less predictable.

Business solutions subscription revenue rose 12% to $271.8 million, while service revenue for the segment fell 5% to $45.1 million. This segment provides solutions to life science companies to help them commercialize their products and was originally built on top of that Salesforcehis platform. However, it is moving away from that platform – its new CRM Vault platform became widely available in April and already has customers on it. Won 14 new deals in the quarter for the deal. The company said the transition is going well so far and that more large customer migrations are planned for next year.

Meanwhile, revenue from research and development solutions rose 27% to $289.5 million. Service revenue for the segment decreased 3% to $69.8 million. This segment provides software solutions that help life science companies develop drugs and medical devices.

Adjusted earnings per share (EPS) were $1.62, up 34% from a year ago. Meanwhile, normalized billings rose 11% year over year to $631 million. The company also generated operating cash flow of $92.8 million for the quarter and $856.4 million in the first six months. Veeva typically generates most of its cash flow in the fiscal first quarter. It ended the quarter with more than $4.9 billion in cash and short-term investments and zero debt.

Image source: Getty Images.

Veeva expects fiscal third-quarter revenue to be between $682 million and $685 million. Subscription revenue is expected to be approximately $571 million. Adjusted EPS is expected to be between $1.57 and $1.58.

For the full year, management has guided for revenue to be between $2.704 billion and $27.1 billion, with subscription revenue of about $2.257 billion. Veeva is looking for adjusted EPS to be around $6.22. These numbers are slightly up from the previous outlook.

Data source: Veeva Systems.

The company said the increase in guidance resulted from strong execution, noting there was no change in the macro environment.

Long live Veeva

The biggest issue surrounding Veeva is the transition of its commercial solutions customers to its Vault platform. The migration should help the company’s already strong gross margin (over 85% for subscription business) as Veeva will no longer have to pay Salesforce a license fee. However, the company’s decision not to renew its deal with Salesforce when it expires in September 2025 will also put it in competition with the software giant.

For its part, Salesforce recently received the licensing rights back from former competitor Veeva IQVIA and will look to build on top of that product. Veeva, meanwhile, said it plans to have its top 20 pharma customers switch to its Vault platform by the end of next year and wondered how long it would take Salesforce to launch a competitive product.

Customers already use the Vault platform with Veeva’s fast-growing R&D solution, and those platforms are generally very sticky, so I don’t think Salesforce will be able to steal many Veeva customers, although it’s a risk. Meanwhile, the company has seen growth in its business solutions products accelerate over the past two quarters.

At the same time, its R&D solution platform continues to be the company’s biggest growth driver. It will also have the opportunity to expand into adjacent industries when its Salesforce deal officially expires next fall.

VEEV PE report data (1 year ago) by YCharts

Trading at a forward P/E of 32 below analyst estimates next year, the stock is valued similarly to other more mature software-as-a-service (SaaS) names.

However, the company has a solid gross margin expansion story ahead of it starting in the fall of 2025, and it’s also targeting one of the most stable and defensive industries out there. With that in mind, I would be a buyer of the stock at current levels.