Shares of GoodRx Holdings (NASDAQ:GDRX) fell 13% in October, according to data provided by S&P Global Market Intelligence. The company only went public via an initial public offering (IPO) on Sept. 23, so October was its first full month of trading. With this context, here's a possible reason the stock dropped in October: The market is still looking for an appropriate price tag for this promising health-centric technology company.
This is why some investors choose not to invest in IPOs in the first place. In the early days, IPO stocks can be volatile as Wall Street assigns a valuation that corresponds with the business opportunity. Furthermore, in the early days, all shareholders have only held for a short time. This lack of personal history might easily persuade them to move on from a stock if it drops a little.
GoodRx trades at more than 41 times trailing sales (a lofty valuation), and retail investors are still figuring out if the stock is worth it. Don't feel bad if you fall into this category: Professional analysts are divided on the opportunity, too!
Opinions vary from believing the stock will beat the market to merely matching the market's performance, according to reports from The Fly. And price targets range from $48 to $70 per share (a very wide range), according to data found on TipRanks.
GoodRx is a stock on my watch list, but it's not because I fear this typical IPO volatility. Rather, I'm watching how federal policy regarding prescription drug prices changes now that the U.S. presidential election is in the books. Perhaps nothing will change in the end. But this company currently generates the majority of its revenue by providing coupons for drugs, so it's a big issue.
And exactly how GoodRx's business model works can be a little complicated to understand, so investors should also spend plenty of time making sense of it all.
While watching and waiting, it's calming to remember that top stocks can compound shareholder returns for years and even decades. If GoodRx is one of those great investing opportunities, it will still be a great long-term buy several months from now. Therefore, one can wait on the sidelines while searching for answers to remaining questions.