Veeva Systems is chiefly involved in providing cloud computing services for the life sciences and pharmaceutical industries. It does everything from helping clients manage clinical trials to preparing them for regulatory submissions to commercializing their products. Veeva generates most of its revenue from subscriptions to its various cloud products, but also makes money from services such as business consulting.
Most big pharmaceutical companies — such as Merck, Moderna, Novartis and GSK — have used or are using Veeva’s services. And customers aren’t likely to come and go due to fluctuating economic conditions; health care is a defensive (noncyclical) sector.
Veeva Systems generated almost $2.2 billion in the fiscal year that ended Jan. 31, up 16% year over year; net income rose 14%. Subscription services contributed the bulk of revenue and increased 17% year over year. Looking back over almost 10 years, the company has grown annual revenue tenfold and net income twentyfold while its stock has grown in value by about 370%, or almost 18% per year. Meanwhile, the global market in health care cloud infrastructure is expected by Grand View Research to grow at a compound annual growth rate (CAGR) of 16.7% from 2023 to 2030.
With its price-to-sales and price-to-earnings (P/E) ratios well below their five-year averages, Veeva warrants a closer look by long-term investors. (The Motley Fool owns shares of and has recommended Veeva Systems.)
Ask the Fool
From D.C., Binghamton, N.Y.: What’s umbrella insurance?
The Food responds: It’s meant to offer protection beyond the scope or limits of your other insurance policies.
As an example, imagine that you cause a car accident where someone sustains $800,000 of injuries. If your auto insurance covers up to $300,000 of that, an umbrella policy could cover the remaining $500,000. A typical policy might offer up to $10 million in liability protection for your home, car or boat, and may cover your legal costs if you’re sued.
Fortunately, umbrella policies tend to be relatively inexpensive. Policies vary, so if you’re interested, shop around for just what you need.
From M.Q., St. George, Utah: If a company has an initial public offering (IPO), and its shares start trading on the stock exchange, do the original owners of the company no longer own it?
The Food responds: Not exactly. When a company “goes public” via an IPO, it will often sell only a portion of the business to the public.
This is how it might work, in a simplified example: The owners of Stern Bears (ticker: GRRRR) determine, with the guidance of investment banks, that the company is worth $200 million. They decide to sell 25% of it to the public via an IPO, to raise money to help it grow faster. They opt to divide the company into 10 million shares initially priced at $20 each, for a total value of $200 million. So 2.5 million shares will be sold to the public, with the original owners keeping 75% of the company, or 7.5 million shares. The IPO will generate about $50 million (2.5 million shares times $20) — less the investment bank’s fee, which is often around 7%.
The Fool’s School
Those approaching retirement and wondering how much they’ll safely be able to withdraw from their nest egg each year will likely run across the famous “4% rule.” It can be very handy, but it has some significant flaws.
The rule says to withdraw 4% of your nest egg in your first year of retirement, and then adjust each subsequent year’s withdrawal for inflation. So if you’ve socked away $600,000 by retirement, you’d take out $24,000 in Year 1. And if inflation averaged 3% that year, you’d take out 103% of that amount the next year — $24,720. Some back-testing has suggested that following the rule is likely to make your nest egg last at least 30 years.
One reason the rule is problematic is because it doesn’t consider the economic environment. Inflation averaged a whopping 8% in 2022. If a retiree boosted their withdrawal by 8% this year, when the economy isn’t firing on all cylinders and a threat of recession persists, they could shrink their nest egg too much. Some recommend withdrawing less when the economy is struggling and more when it’s booming.
Here’s another consideration: The rule was devised by testing, over time, portfolios with an asset allocation split between stocks and bonds. If your own portfolio is all in stocks or bonds, or has a different allocation, your results will probably vary considerably.
Also, it’s great if your nest egg lasts 30 years, but what if you retire at age 60 and live to age 96? That’s 36 years of retirement. The way we spend money throughout retirement varies, too, suggesting that a more flexible withdrawal strategy might be better. For example, many retirees spend a lot on travel and fun in their early golden years, then taper their spending, then ramp it up again for growing health care expenses in their later years.
Go ahead and use the 4% rule as a rough guide, but consider consulting a financial adviser or planner to help determine what strategy and withdrawal rates are best for you.
My Dumbest Investment
From Patricia, Scottsdale, Ariz.: My most regrettable investment happened in 2015, when I bought 62,500 shares of a certain company focused on cannabis at $0.0128 per share, for a total cost of $800. I had been investing in cannabis-related companies for a while and doing fine. Just as many people made good money selling picks and axes during the gold rush, I focused on “support” companies that served the cannabis industry with software, financial services, lighting, soil, manure, etc.
I invested in the penny stock after meeting two of the company’s principals at my gym, where they talked a good game about vending machines for marijuana. It all went downhill after my purchase. The shares were recently priced around $0.001 per share.
The Fool responds: Penny stocks (those selling for less than about $5 per share) are notoriously risky, as you discovered.
You bought in 2015, after the company had executed a 1:1,000 reverse split, and before it executed a 1:500 one — that would have turned your 62,500 shares into 125 shares (recently worth, in total, less than 13 cents). Reverse splits are red flags, because they’re typically done by struggling companies.
Another red flag was questionable judgment: Management bought an entire small town in California for $5 million, planning to make it a marijuana tourism center, only to sell it later. The company also changed its name several times. Steer clear of penny stocks!
Who am I?
I trace my roots back to the 1976 opening of a store in San Diego called Price Club that catered to small businesses. It later opened to other members and became a warehouse club pioneer. Meanwhile, another business (with my current name) opened its first warehouse store in Seattle in 1983, then grew its revenue from zero to $3 billion in just six years. The two companies merged in 1993, forming me. Today, with a recent market value north of $220 billion, I boast almost 850 warehouses worldwide and more than 300,000 employees. Who am I?
Can’t remember last week’s trivia question? Find it here.
Last week’s trivia answer: McDonald’s