Here's Why Veeva Systems Inc. Is on the Rise Today

What happened

Shares of Veeva Systems Inc. (NYSE: VEEV), an IT provider with services tailored to the biopharma industry, are on the move after another positive earnings report. Outstanding customer retention and recruitment helped lift the stock 13.7% as of 1:29 p.m. EST on Wednesday.

So what

During the year ended Jan. 31, total revenue grew 26% to $685.6 million. But I'd argue that investors are even more encouraged by the rapidly rising popularity of the Veeva Vault suite of services. The company's flagship customer relationship management (CRM) applications are built on a platform by salesforce.com and subject to fees, but Veeva owns its Vault applications outright.

Person in a suit drawng an upward-sloping chart in the air

Image source: Getty Images.

Customers adopted Veeva Vault at a record pace in the latest quarter, including two Top 20 pharmaceutical companies. For the year ended January, it added 115 new Vault customers, bringing the total to 449. Higher-margin Vault revenue helped the company report a 40% higher operating profit in fiscal 2018, despite total revenue rising just 23% last year.

Now what

Solid performance is the norm for Veeva, but a great deal of success is already baked into the price. The stock's been trading at a frightening 68 times this year's earnings expectations. If the market gets the slightest hint that earnings might not continue rising at a blistering pace, the stock could tumble.

Drug developers generate heaps of data, and right now Veeva offers the only applications tailored to their needs. That makes a strong argument for continued growth, but sooner or later the biopharma industry will run out of fresh customers.

Veeva has been attracting new clients from other highly regulated industries, including a Top 30 chemical company during the latest quarter. To justify the stock's nosebleed-inducing valuation, this is a trend that may need to continue.

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Veeva Systems. The Motley Fool recommends Salesforce.com. The Motley Fool has a disclosure policy.