Veeva Systems Inc. (NYSE:VEEV) shares are up more than 41.94% this year and recently decreased -6.65% or -$3.84 to settle at $53.93. Teladoc, Inc. (NYSE:TDOC), on the other hand, is up 98.79% year to date as of 12/05/2017. It currently trades at $30.92 and has returned -10.75% during the past week.
Veeva Systems Inc. (NYSE:VEEV) and Teladoc, Inc. (NYSE:TDOC) are the two most active stocks in the Healthcare Information Services industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect VEEV to grow earnings at a 21.85% annual rate over the next 5 years. Comparatively, TDOC is expected to grow at a 20.00% annual rate. All else equal, VEEV’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Veeva Systems Inc. (VEEV) has an EBITDA margin of 25.63%. This suggests that VEEV underlying business is more profitable VEEV’s ROI is 10.30% while TDOC has a ROI of -26.00%. The interpretation is that VEEV’s business generates a higher return on investment than TDOC’s.
If there’s one thing investors care more about than earnings, it’s cash flow. VEEV’s free cash flow (“FCF”) per share for the trailing twelve months was +0.36. Comparatively, TDOC’s free cash flow per share was -0.22. On a percent-of-sales basis, VEEV’s free cash flow was 0.01% while TDOC converted -0.01% of its revenues into cash flow. This means that, for a given level of sales, VEEV is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. VEEV has a current ratio of 3.30 compared to 5.10 for TDOC. This means that TDOC can more easily cover its most immediate liabilities over the next twelve months. VEEV’s debt-to-equity ratio is 0.00 versus a D/E of 0.83 for TDOC. TDOC is therefore the more solvent of the two companies, and has lower financial risk.
VEEV trades at a forward P/E of 56.25, a P/B of 10.54, and a P/S of 12.87, compared to a P/B of 4.15, and a P/S of 9.58 for TDOC. VEEV is the expensive of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. VEEV is currently priced at a -18.51% to its one-year price target of 66.18. Comparatively, TDOC is -21.62% relative to its price target of 39.45. This suggests that TDOC is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.10 for VEEV and 1.90 for TDOC, which implies that analysts are more bullish on the outlook for VEEV.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. VEEV has a short ratio of 4.83 compared to a short interest of 16.31 for TDOC. This implies that the market is currently less bearish on the outlook for VEEV.
Teladoc, Inc. (NYSE:TDOC) beats Veeva Systems Inc. (NYSE:VEEV) on a total of 7 of the 14 factors compared between the two stocks. TDOC is growing fastly. In terms of valuation, TDOC is the cheaper of the two stocks on an earnings, book value and sales basis, TDOC is more undervalued relative to its price target. Finally, BBBY has better sentiment signals based on short interest.