Why Veeva Systems Stock Sunk
- Veeva’s stock tumbled with other growth stocks ahead of today’s Federal Reserve rate announcement.
- The firm lowered its forecast in its most recent earnings report, partly due to the macro environment.
What’s going on with Veeva Systems stock
Veeva Systems stock sunk today as the health tech company felt the effects of the larger market sell-off.
Veeva Systems (NYSE:VEEV) had no company-specific news to report yesterday. Despite that, rising treasury yields yesterday and the possibility of the Fed’s interest rate hike today were enough to spark a sell-off.
Veeva’s stock closed the day down 2.6%, while the S&P 500 (^GSPC) lost 1.1%.
Why we care
The Federal Open Market Committee, which sets the federal funds rate, began its two-day session yesterday. They will likely announce a 75-basis-point increase today when the benchmark rate will be 3% to 3.25%.
The market fell yesterday, with investors anticipating Fed chair Jerome Powell to voice more negative predictions today at the press conference. As a result, the 10-Year Treasury Yield jumped 2.3%, now at its highest since 2011. That jump is a signal that people are readying themselves for high-interest rates in the future. This news hit growth stocks like Veeva hard, and many tumbled.
High-growth stocks, like Veeva, a provider of cloud software for the life sciences industry, are more delicate to increasing interest rates and any potential recession they could trigger. Even though Veeva is profitable, it trades at a high earnings multiple. And when interest rates go up, investors value future earnings less since the discount rate in valuations also rises.
Veeva’s latest quarterly results were stable, meeting analyst expectations as revenue developed by 17%. However, guidance for the third quarter was lower than expected. The company explained that this is because of a stronger dollar and other economic headwinds causing more extended sales cycles.
That’s an indication the stock will remain sensitive to the macroeconomic climate, including today’s interest rate announcement.
The promising news for Veeva investors is that the healthcare business is typically recession-proof. Furthermore, the stock has a more reasonable value than most of its SaaS (software-as-a-service) counterparts, with a P/E ratio of 40 based on this year’s anticipated income.
A sell-off looks like a good buying opportunity if Veeva can sustain the valuation.