What a brutal six months it’s been for Veeva Systems. The stock has dropped 44.2% and now trades at $166.60, rattling many shareholders. This may have investors wondering how to approach the situation.

Following the drawdown, is this a buying opportunity for VEEV? Find out in our full research report, it’s free.

Why Does Veeva Systems Spark Debate?

Originally named "Verticals onDemand" before rebranding in 2009, Veeva Systems (NYSE: VEEV) provides cloud software, data solutions, and consulting services that help life sciences companies develop and bring products to market more efficiently.

Two Positive Attributes:

1. Operating Margin Reveals a Well-Run Organization

While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.

Veeva Systems has been a well-oiled machine over the last year. It demonstrated elite profitability for a software business, boasting an average operating margin of 28.7%. This result isn’t too surprising as its gross margin gives it a favorable starting point.

2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Veeva Systems has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the software sector, averaging an eye-popping 43.4% over the last year.

One Reason to be Careful:

Weak Billings Point to Soft Demand

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Veeva Systems’s billings came in at $1.52 billion in Q4, and over the last four quarters, its year-on-year growth averaged 14.3%. This performance slightly lagged the sector and suggests that increasing competition is causing challenges in acquiring/retaining customers.

Final Judgment

Veeva Systems’s merits more than compensate for its flaws. After the recent drawdown, the stock trades at 8.1× forward price-to-sales (or $166.60 per share). Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.

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