In my January 6, 2026 Veeva (VEEV) post, I disclose the purchase of an additional 100 shares @ ~$234.115 thus bringing my exposure to 700 shares in a ‘Core’ account in the FFJ Portfolio. Subsequent to this purchase, VEEV’s share price has, fortunately, experienced weakness thus providing the opportunity to acquire an additional 100 shares @ $219.45 on January 15.
VEEV will likely release Q4 and FY2026 results (January 31 fiscal year end) in early March. On January 13, however, it presented at J.P. Morgan’s Healthcare Conference thus prompting me to revisit this existing holding.
In prior posts I touch upon management’s $6B revenue goal by FY2030; it set an ambitious target in 2019 of achieving $3B of annual revenue by 2025 and achieved this target. Were VEEV to remain solely focused on being a Customer Relationship Management (CRM) company, it would be challenging to achieve this $6B revenue goal. VEEV, however is evolving and the CRM contribution toward its overall revenue is steadily declining. CRM was VEEV’s first product in 2007 and it comprised ~75% of VEEV’s annual revenue. In 2025, this was reduced to ~20% and by 2030 is expected to be closer to ~10%.
VEEV’s capital allocation priority is reinvesting in the company. Its second priority is a disciplined approach to acquisitions. Now, opportunistic share repurchases are part of its capital allocation priorities – I touch upon this in my January 6 post.
VEEV appeals to me on multiple fronts with its return on invested capital (ROIC) being particularly appealing.
Why Return On Invested Capital (ROIC) Matters
ROIC provides an indication of a company’s efficiency. In essence, how much profit is generated for every dollar invested in the company – is a company actually creating value or ‘burning’ cash for the sake of growth?
A company with a higher ROIC is mathematically worth more because it requires less reinvestment to achieve that growth.
A good indication of how well a company is performing is to compare the Weighted Average Cost of Capital (WACC) versus the ROIC.
A company creates shareholder value if, for every dollar it raises from debt or equity, it generates more than the cost to get that dollar.
The company is said to be a wealth destroyer even if there is revenue growth IF it costs more to fund the business than the business produces in returns.
A high ROIC company can fund its own growth using its own profits meaning it does not need to issue more stock or incur a heavy debt load. A low ROIC company, on the other hand, must constantly seek external funding to fuel its growth.
A consistently high ROIC (eg. above 15-20%) company usually suggests there is a competitive moat. This could be by way of a strong brand, high switching costs, or unique technology which allows the company to keep prices high or costs low without competitors stealing their profits.
Companies with high ROIC generally have high valuations because their earnings are ‘high quality’ and are more likely to result in actual cash flow for shareholders.
ROIC Shortcomings
The generally accepted high-level formula used by Wall Street is:
ROIC = NOPAT/Average Invested Capital
with the Net Operating Profit After Tax (NOPAT) formula being Operating Income (EBIT) x (1-tax rate)
This shows how much profit the core business makes while ignoring how much debt the company has.
The Average Invested Capital is the total money tied up in the business.
- The Operating Approach formula is
- The Financing Approach is
While VEEV’s ROIC has generally ranged between 8% – 17% over the last few fiscal years, specific values vary significantly depending on the financial provider’s methodology. Calculating a ‘true’ ROIC for a cloud software company such as VEEV is difficult because traditional accounting was designed for industrial companies with physical factories and not software companies with intellectual property.
The following are reasons why it is difficult to calculate ROIC for VEEV.
The ‘Excess Cash’ Problem
VEEV maintains an exceptionally large cash and cash equivalents and short-term investment balance (over $6.6B at the end of Q3 2025 (October 31)) and carries no debt. If we include all $6.6B in ‘Invested Capital’, ROIC looks artificially low because cash earns a very low return compared to software operations. Deciding exactly how much of this cash is ‘excess’ versus ‘operating’ is subjective.
If a large percentage of VEEV’s $6.6B in cash and cash equivalents and short-term investments are classified as ‘excess’, the ROIC skyrockets. This is because ROIC measures the return on the capital actually working in the business. In financial modeling, ‘excess cash’ is often removed from the denominator because it is not an ‘operating asset’. It is merely sitting in highly liquid and low risk accounts/financial instruments.
On January 5, 2026, VEEV announced a $2B share repurchase program. While VEEV’s Board perhaps considers a much greater amount of the company’s cash equivalents and short-term investments to be ‘excess’, it likely just authorized a ‘prudent’ allocation toward share repurchases. Bear in mind, that VEEV is likely to generate ~$1B in annual free cash flow in the coming years.
R&D as an Expense vs. an Investment
VEEV incurs relatively little capital expenditures (CAPEX) but invests heavily in research and development (R&D). Under accounting rules (GAAP), R&D is recorded as a current expense. This lowers VEEV’s profitability. Economically, R&D is a capital investment that should be on the balance sheet (denominator). While analysts often ‘capitalize’ R&D to get a true ROIC, there is no industry-standard way to do this.
Deferred Revenue
VEEV’s customers pay for their subscriptions in advance. This creates a situation where its customers are effectively funding its growth.
Intangible Assets and Acquisitions
If VEEV acquires companies, it records Goodwill. Including Goodwill in Invested Capital measures how well management has done with acquisitions. Removing it measures how well the core “organic” business is performing. Investors often disagree on which version provides a better view of the company’s health.
Valuation
The current forward adjusted diluted EPS broker estimates are almost identical to those reflected in my prior post. Furthermore, my forward FY2025 FCF estimates are unchanged.
The only material difference, is that I acquired an additional 100 shares @ $219.45 on January 15 versus 100 shares @ ~$234.115 on January 6. It, therefore, stands to reason that the most recent share purchase was made at a more favorable valuation.
VEEV’s valuation in my January 6 post using the adjusted diluted EPS broker estimates was:
- FY2026 – 27 brokers – mean of $7.94 and low/high of $7.92 – $8.04. Using the mean estimate, the forward adjusted diluted PE is ~29.5.
- FY2027 – 27 brokers – mean of $8.57 and low/high of $8.23 – $8.93. Using the mean estimate, the forward adjusted diluted PE is ~27.3.
- FY2028 – 22 brokers – mean of $9.78 and low/high of $8.54 – $14.21. Using the mean estimate, the forward adjusted diluted PE is ~24.
VEEV’s valuation using my January 15 $219.45 purchase price is:
- FY2026 – 27 brokers – mean of $7.94 and low/high of $7.92 – $8.04. Using the mean estimate, the forward adjusted diluted PE is ~27.6.
- FY2027 – 27 brokers – mean of $8.59 and low/high of $8.23 – $8.93. Using the mean estimate, the forward adjusted diluted PE is ~25.5.
- FY2028 – 22 brokers – mean of $9.79 and low/high of $8.54 – $14.21. Using the mean estimate, the forward adjusted diluted PE is ~22.4.
Final Thoughts
My final thoughts are the same as those expressed in my January 6 post.
I will be on a several week ski vacation when VEEV releases its Q4 and FY2026 (January 31 fiscal year end) results and Q1 and FY2027 outlook in early March. My intention is to revisit VEEV in late March.
When I completed my 2025 Year-End Investment Holdings Review, VEEV was my 28th largest holding. At the time of that review, the share price was ~$223 and I held 600 shares. I now hold 800 shares in a ‘Core’ account in the FFJ Portfolio and the share price is ~$222. I, therefore, suspect it is still a top 30 holding.
Note: Please send any feedback, corrections, or questions to finfreejourney@gmail.com.
Disclosure: I am long VEEV.
Disclaimer: I do not know your circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your own research and due diligence. Consult your financial advisor about your specific situation.
I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with any company mentioned in this article.
