Shares of Veeva Systems (NYSE: VEEV)
kept investors guessing after the company’s Q3 earnings last week. The stock whipped around a 12% range from Tuesday’s close on Wednesday following the release the previous evening. With markets shut on Thursday, they went into the Thanksgiving holiday down almost 4% for a finish and the selling continued when markets reopened on Friday. After rallying 14% into earnings over the preceding fortnight, shares gave back almost half of that in two days.
However, this uncertain and ultimately negative post-earnings action definitely went against the grain of the top-line numbers and guidance from management. Veeva’s EPS registered a comfortable beat on estimates as did revenue which was up 25% YOY. On top of this, net income was up 35% and management raised full-year EPS and revenue guidance above analyst consensus.
All in all, a fairly positive report for the $22 billion cloud software company that you’d think would have investors raising their glasses over their Thanksgiving meal. Despite shares being up over 2% post-market after Tuesday’s release, their performance on Wednesday and Friday told us a different story and there might have been some awkward conversations at the table instead.
Strong Previous Quarters
It’s likely that Wall Street was expecting more and so had overcooked the stock in the weeks beforehand. Veeva is a stock that has been a joy to hold in recent years. Of the past 8 earnings reports, they’ve beaten EPS and revenue estimates every single time. There were warning signs however that a beat alone would not be enough this time and that investors were looking for more.
Over the past 3 months alone, EPS estimates were revised upwards 16 times and revenue estimates 15 times. With the stock down over 20% from July’s all-time highs, it’s hard to blame traders for getting long in the weeks before their most recent release with sentiment so positive. On the flip side though, there’s huge pressure on the earnings report to justify the sentiment nothing moves quicker than an investor looking to get out of a stock that isn’t living up to expectations.
That said, the fundamentals remain very attractive and momentum is nothing but forward. Management is evidently bullish on the company’s prospects and their ability to keep marching forward.
CEO Peter Gassner struck a very positive note on the conference call when he said that “It was a very exciting quarter. We delivered great results, significantly expanded in new and existing areas, and welcomed Crossix and Physicians World to the Veeva team. Our focus on innovation, customer success, and ability to execute across multiple large markets sets us up for strong growth well into the future.” Last month the company acquired Physicians World, a leading provider of bureau services in a sign of management’s drive to continue growing.
Leadership has a history of success and has brought the company from 9th position in terms of specific pharma software providers to 1st, beating out Oracle’s (NYSE: ORCL) and SAP’s (NYSE: SAP) more general offerings in the meantime.
After IPO’ing in October 2013, Veeva shares put in a tough shift for the next 3 years. It wasn’t until 2017 when they traded above their opening price but to be fair, they haven’t looked back since. They’re up 450% in the past 4 years and 70% for 2019 alone, even after last week’s selling.
Despite looking weak since July, they’ve consistently found buyers at the $140 level and this would be a prime entry point for anyone looking to get involved as they look to break the downtrend. For those who don’t think it will even get back down there again, the stock is currently right above its 50-day moving average and 200-day moving average which tends to form solid support levels. These moving averages came close to a bearish crossover earlier this month but are starting to diverge again.
This is a company that clearly knows what it’s doing and has done everything asked of it in recent years. You can’t really blame management if investors get carried away on the wave of optimism but the selling in recent months should be considered a blessing in disguise for anyone looking to get involved. There’s a great growth story and solid momentum to get behind and the technicals are lining up well for an entry point.
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