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Motley Fool: Viva, Veeva!

Escalating competition between top drugmakers has boosted demand for Veeva’s services in recent years.  (Courtesy Veeva Systems)
Escalating competition between top drugmakers has boosted demand for Veeva’s services in recent years. (Courtesy Veeva Systems)

Meet Veeva Systems (NYSE: VEEV), a pricey stock worth considering. It provides dedicated cloud services to biotech and pharmaceutical companies, helping them maintain customer relationships, keep track of clinical trials and regulations, and store and analyze their data.

The majority of its income comes from subscriptions to its Veeva Commercial Cloud and Veeva Vault services. That’s an attractive business model, because subscriptions mean relatively reliable, predictable revenue. Veeva’s “sticky” environment is another plus, as it can seem like more trouble for customers to leave and set up with a different provider than to just remain with Veeva.

Escalating competition between top drugmakers has boosted demand for Veeva’s services in recent years. The company has expanded its digital health care ecosystem by acquiring Crossix Solutions, a leader in patient data privacy and analytics, and Physicians World, a provider of speakers bureau services.

With a forward-looking price-to-earnings (P/E) ratio recently north of 90, Veeva’s stock isn’t cheap. But Veeva is growing briskly, with revenue and earnings both increasing by more than 30% year-over-year in fiscal 2021’s second quarter. Veeva is expected to grow by more than 15% annually over the coming five years.

Consider investing in Veeva if you can be patient – or, to play it safer, add it to a watch list. Then you can buy it later, if the price drops. (The Motley Fool owns shares of and has recommended Veeva Systems.)

Ask the Fool

Q. What does it mean when a company “initiates coverage” on a stock? – R.I., Redmond, Washington

A. Financial companies such as banks and brokerages often have analysts who research companies and report on their potential as investments. When a bank or brokerage initiates coverage of a company, that means at least one of its analysts has begun to follow the stock and will report on it regularly – often labeling it with a rating, such as “buy,” “hold” or “sell.” (It’s typically rare to see a “sell” rating: The analyst’s employer may not want to insult a company with which it might do business, now or in the future.)

Many brokerages offer gobs of research reports on companies, which can be far more informative than a single one-word rating. Look into what research your brokerage offers, or read up on better brokerages at TheAscent.com. To see many stocks Motley Fool analysts have recommended, try our Stock Advisor service at Fool.com/services.

Q. What’s a mutual fund’s “NAV”? – T.Y., online

A. NAV stands for net asset value, or the fund’s per-share value. As funds generally hold many different securities (plus cash and cash equivalents), the total value of a fund’s holdings is tallied at the end of each trading day, and any receivables or accrued income are added. Then the mutual fund’s expenses for the day, such as trading commissions and operating costs, are subtracted. The result is divided by the fund’s number of shares; that gives you the net asset value of the fund.

Note that the NAV doesn’t account for money distributed to shareholders, such as dividends. When evaluating a fund’s performance, focus on its total return over time, not its changing NAV.

My dumbest investment

My dumbest investment has been using options. – E.F., online

The Fool responds: Options are best avoided by beginning and unsophisticated investors. There’s a range of ways to invest with options, and some of them can be quite risky. The most basic forms of options are “calls” and “puts.” A call for a particular stock gives you the right to buy shares of it at a specified price (the “strike price”), while a put gives you the right to sell shares at a specified price. Neither is an obligation.

Call and put options come with a defined shelf life; once they expire, they’re worthless. That’s one knock against them: While you can hang on to shares of stock for years, waiting for them to perform as expected, an option that expires in a few months can only serve you in that period. As an example, imagine that you buy a call option with a strike price of $55 on Typewriterland (ticker: QWERTY), which is currently trading at $50 per share. If the shares zoom to, say, $65 before the options expire, you can exercise them, buying those $65 shares for just $55. (Hopefully, that’s enough to recoup the money you spent buying the option.)

There’s much more to know about options before you even consider using them, so do your due diligence. And know that you can build great wealth without using options at all.

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