Motley Fool: Va-Va-Veeva!

Veeva Systems (Nasdaq: VEEV) 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

Q. What’s umbrella insurance? – D.C., Binghamton, New York

A. 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.

Q. 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? – M.Q., St. George, Utah

A. 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%.

My dumbest investment

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. – Patricia, Scottsdale, Arizona

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!