GoodRx Holdings (NASDAQ:GDRX) was one of the top healthcare IPOs of 2020, and today it has a market cap of $17 billion. However, it's been on a bumpy ride since the stock made its debut in September -- falling by more than 13%, even as the S&P 500 climbed by 16%. Although there are many growth opportunities for the company, it's also facing some risks, especially with Amazon (NASDAQ:AMZN) recently launching its pharmacy business and showing a greater interest in healthcare.

For investors, it can be challenging to determine if the risks outweigh the potential rewards, and whether GoodRx is a good buy. I'll try to answer that question by looking at the company's overall business and how well it's been doing, its current valuation, and just how much of a threat Amazon poses.

Medical products in a pharmacy.

Image source: Getty Images.

The business is growing at a great rate

One of the exciting things about GoodRx's business is how fast it's growing. On Nov. 12, 2020, the company released its most recent quarterly results for the period ending Sept. 30, 2020, and sales of $140.5 million grew 38% year over year. On a year-to-date basis, revenue of $397.2 million was up by even more -- 44% higher than the $275 million GoodRx reported in the prior-year period. In Q3, it incurred a loss of $50 million as a spike in general and administrative expenses (due to stock-based compensation and the IPO) weighed on its bottom line. However, over the past three quarters, the company is still in the black with a profit of $4.7 million (down 91% from a profit of $50.8 million a year ago).

Overall, the results are encouraging, and there could be even more growth ahead. Last month, the company announced that in addition to helping patients save on prescriptions, it would also help them cut down on telehealth visits. Its GoodRx Gold subscription program costs users $5.99 a month, and the company said those subscribers will now be able to schedule a telehealth visit for as little as $10. Using the GoodRx app will also enable free delivery of prescriptions. Both of these changes give patients a greater incentive to use GoodRx and could help drive more revenue growth in future periods. But just how much of a premium are investors paying for that revenue?

Is GoodRx stock too expensive?

To evaluate GoodRx's price, let's compare it against two other high-growth healthcare stocks, Teladoc and American Well. And since not all of the companies are posting consistent profits, let's use forward price-to-sales
(P/S) multiples to compare their valuations based on future sales. For GoodRx stock, investors are currently paying 23 times its future sales, which is the same as Amwell. Teladoc stock is a bit cheaper, with a forward P/S multiple of just 17. Based on these numbers, GoodRx doesn't look to be too expensive. Teladoc was recently in the same ballpark, even trading at a future P/S of more than 24.

GoodRx also has an advantage because unlike Teladoc and American Well, it is profitable. And excluding the most recent quarter, its early profit margins have been fairly strong, coming in at more than 10% of revenue.

But with a tech giant like Amazon posing a threat to its business, investors could argue that GoodRx should be trading at more of a discount.

Why Amazon could make a dent in GoodRx's business

GoodRx is doing a great job growing its business, and its shares would likely be doing a whole lot better if investors weren't concerned about competition. On Nov. 17, 2020, tech giant Amazon formally introduced Amazon Pharmacy. The new Amazon store will allow customers to buy their prescriptions online, and if they're Prime members they can receive their purchases within two days and save up to 80% if they don't have insurance coverage. GoodRx Co-CEO Doug Hirsch was quick to try to calm fears about the Amazon threat, saying that the tech giant is a pharmacy while his company acts as a marketplace.

And while it's true that Amazon doesn't offer the same service as GoodRx in finding the cheapest places to buy prescriptions, it could still undercut them. If customers know they can get the best deals on prescriptions at Amazon, they may not even bother using GoodRx's app. The key advantage GoodRx enjoys today is the deals it has in place with pharmacy benefits managers, which offer it a little breathing room. But investors still shouldn't ignore the risk that Amazon poses.

Should you buy GoodRx stock?

GoodRx isn't a stock I'd buy today, despite its impressive growth. Amazon is just too big of a wildcard right now. Given its incredible size and capabilities, the tech giant could offer a better solution for customers in the future, and there's no telling how deep it wants to get into healthcare. GoodRx's current valuation also isn't enticing enough to make the stock worth the gamble, especially since many stocks are overpriced with the Dow Jones hitting record highs this month.

Investors are better off looking at cheaper investment options than GoodRx, or at least focusing on companies that don't have to check for Amazon in their rearview mirrors.