Veeva Systems And Ansys: Two Software Stocks You May Have Missed

VEEV: Veeva Systems logo
VEEV
Veeva Systems

The software industry as a whole could see accelerated growth as a result of fundamental changes that businesses may undergo coming out from the Covid-19 disruption. We expect digital transformation to accelerate and remote/cloud-based collaboration to become more mainstream. So who do you bet on in this industry? Here is a duo that might interest you – Veeva Systems (NYSE:VEEV) and Ansys Inc (NASDAQ:ANSS). How did we pick these two? We followed the same systematic approach and looked at companies that – (1) Have grown their revenue by at least 30% in the last 3 years indicating market presence and expansion (2) Had more than 20% operating margin in 2019, which suggests strong financial control and pricing power (3) Generated positive cash flow in 2019 (4) Have cash pile equal to at least 20% of their annual revenue. . Our dashboard Veeva Systems & Ansys – Two Software Stocks You May Have Overlooked outlines our methodology and gives more insights to the historical performance of these stocks. Overall, they may be good securities to invest your money.

Veeva Systems – There are three things that intrigue us about Veeva Systems. First, is its extremely strong correlation across all financial parameters, without any conflict or paradox. The stock price, revenue, and net income, all have grown steadily over the years. In fact, profitability has increased – while revenue has nearly tripled since fiscal 2016, net income has increased 6-fold. This reflects in accelerated growth in the stock price. Second, a sharp jump in the current fiscal year suggests Covid-19 induced demand boost. This makes sense given that Covid-19 has accelerated the shift of pharmaceutical and biotech companies to Veeva’s cloud-based software. Third, the company is financially healthy with consistent revenue growth, 26% operating margin, and sufficiently large cash pile of $721 million. Overall, a strong bet.

Ansys – Ansys develops engineering simulation software for product design, testing, and operation. Like Veeva, Ansys’ revenue, net income, and as a result, stock price, have grown consistently in the last few years. But Ansys’ operating margins are much higher at 35%, with a comfortable cash pile of more than $700 million. Therefore, like Veeva, Ansys is financially sound and safe. So where does Covid-19 come into the picture? While the demand may not get a boost, the negative impact on its revenue is likely to be limited. Even though businesses across industries have slowed down, consensus estimates suggest revenue growth for Ansys even in this grim scenario. This means that at a fundamental level, the demand for its software is very strong, implying that momentum is likely to pick up in 2021.

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