After a nice share run-up post-IPO, America's No. 1 drug app company by popularity, GoodRx Holdings (GDRX 20.40%), is down over 30% from its high and remains below its debut price of $46 per share. Now, many investors are wondering if they should buy the dip on some shares.

After all, who wouldn't be excited about investing in a company that genuinely helps make prescription drugs affordable for all? As it turns out, there is a key reason why GoodRx is a great business, but may not be a great investment. Can the company hold its ground against a mega-competitor that's about to enter the industry? Let's find out together.

Pills on conveyor in pharmaceutical plant

Image source: Getty Images.

Undoubtedly, it's a much-needed business

Since its inception in 2011, GoodRx has helped more than 18 million customers fill their prescription drugs, making for over $20 billion in cumulative savings. Patients can save up to 80% on their medications with a GoodRx coupon, and up to 90% should they decide to become subscribers.

These coupons are available at more than 70,000 pharmacies across the country. What makes GoodRx unique is that its service is free to users. The company makes money by referring foot traffic to retail pharmacies and receiving a reimbursement of between 14% to 15% of the value of the prescription filled. GoodRx is also expanding its platform to find the lowest price for doctor's visits and telemedicine consultations.

But its main focus remains in the prescription market. The company plays a vital role in serving an estimated 26% of Americans who are uninsured, as well as those who may be under-covered by their insurance plans. It should not be surprising that the GoodRx app is the most downloaded medical app in the past three years, with an average rating of 4.8/5 based on over 700,000 reviews.

Right now, there are about 15 million monthly visitors to GoodRx's website, with 4.3 million monthly active users. Roughly 80% of users who cash in one of GoodRx's coupons use the service again. 

In the past twelve months, the company grew its sales by a respectable 53% year over year to $472 million. Its business model is also highly efficient, producing a gross margin of 96% and an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 37%. 

GoodRx has been consistently profitable for the past four years and has broken even over the past nine months of 2020. Despite having success so far, the bullish case for GoodRx is getting significantly riskier going forward -- disruptors are moving in.

A fierce competitor is coming to town

Last month, Amazon (AMZN 2.08%) announced it will launch its own digital pharmacy called Amazon Pharmacy. Those who use the service can have their prescription filled and delivered free of charge (within two days) in the comfort of their own home, or pick it up at more than 50,000 pharmacies nationwide in 45 states.

Like GoodRx, Amazon Pharmacy would offer up to 80% discounts on generic drugs and 40% discounts on brand name drugs for uninsured patients. That could be very problematic for GoodRx's outreach, as Amazon is making the service accessible for more than 126 million of its U.S. Prime members. 

Essentially, Amazon would do be doing GoodRx's job and more. Its already has the infrastructure needed via its national fulfillment centers to ship prescriptions in a cost-effective and convenient manner. Due to the sheer size of its existing operations, Amazon could leverage its partnerships with pharmacy benefit managers (PBMs) to negotiate huge bulk discounts when buying medications from drug manufacturers, paving the way for further discounts.

What's the verdict?

The entry of Amazon into the online prescription drug business will probably put a huge dent in GoodRx's growth rates. In addition, its business model would have a hard time competing internationally, as it is only useful in the U.S., which is the only developed country in the world where the government does not have the power to negotiate drug prices.

Even after a steep sell-off, GoodRx stock is trading at a remarkable 32 times revenue, which is very expensive for a company that's increasing its sales by around 50%. In the next decade or so, I'd expect the company's revenue to plateau due to fierce competition from Amazon and restrictions on moving its business model abroad. Investors who are looking into healthcare stocks should pass on GoodRx and search for longer-term alternatives.