In times of inflation, oftentimes employees' wages don't rise as fast as prices. This presents an opportunity for companies that are able to provide consumers lower costs on the things they need. GoodRx (GDRX 5.12%) is one of those companies. On a Motley Fool Live episode recorded on June 17, Motley Fool contributor Brian Feroldi explains why this prescription coupon service is set to thrive during inflation.
Brian Feroldi: When I was thinking about what kind stock would do well in an inflationary environment, I attacked it from a different angle. I'm going to talk about GoodRx, this ticker [for this] company is GDRX. When there is inflation in the economy, what usually happens is prices rise, but wages are a lagging indicator. Wages do not rise as fast as those prices, because there's a delay between employee saying, hey, I need a raise to offset these prices and companies being willing to pay them. In between there, employees are getting squeezed. Their purchasing power is declining. Then the healthcare industry, inflation is nothing new. Prices in healthcare industry have been rising for, is it forever essentially at a higher rate than the overall inflation rate? That is one reason why more consumers than ever are flocking to GoodRx.
For those that don't know, GoodRx is a mission-driven company. Their entire reason for being, is to help Americans get the healthcare they need, at a price they can afford. But what this company really does, is it's a coupon company that allows consumers to use the platform to pay the absolute lowest price for their prescriptions, that they possibly can. That's a really big problem, because about 20-30 percent of all prescriptions in the United States are not filled. The number one reason they are not filled, is because of cost. Americans cannot afford them, so even though they need this medicine, they just don't go in and get it.
GoodRx operates behind the scenes and it works directly with pharmacy benefit managers, pharmacies, manufacturers, Medicare, and patient assistant programs. It's like an online shopping portal that provides a coupon, for consumers to go to a pharmacy and pay the absolute lowest price. If inflation comes along and there's pricing pressure on consumers budgets, they're going to want ways to save money, that would drive them to use GoodRx more than they already are.
One of the thing I like about GoodRx as an investment is consumers and healthcare providers absolutely love this product. Right there that chart on the screen shows the net promoter score. Net promoter score from consumers is 90 and the net promoter score from physicians is 86. If those compare, look at where it is compared to Netflix. Netflix is at 64, which is a superb score. People that use GoodRx really like it, because again, it's a free tool for you to use, and get cost-savings on your drugs.
Because of that, the number of consumers that are actively using this product has just grown like clockwork, basically since this thing was invented. There is currently about 5.7 million consumers using it. Now, how do they make money? There is a couple of different ways. But the number one way they make money, is on coupons. So the coupons that are used whenever a drug is filled using GoodRx's platform, GoodRx gets a cut of that.
This company's growth has been phenomenal, 54 percent compound annual growth rate for the last five years. This company is highly profitable, it's adjusted EBITDA rate, is in the 40-ish percent rates. Not my favorite metric for looking at profitability, but it is a metric to look at. If you look at what happened this most recent quarter, revenue growth was only about 25 percent, prescription was about flat because consumers are having trouble getting prescriptions, but their other revenue segment which includes a telehealth and a subscription business to get even lower savings, those businesses are growing at a triple-digit rate.
If you look at net income, this formerly very profitable company reported just a tiny net income of 1.6 million, but almost all of that is due to stock-based compensation related to the IPO. They actually produced about $43 million in free cash flow, for the quarter, which was 20-30X what the net income was. Because of that, net income isn't a good indicator here. Management is projecting 41 percent revenue growth next quarter and about 36 percent revenue growth for the full year. There might be some upside there, if indeed inflation comes along.
When you look at the potential of this business, the healthcare market is massive. It's 30 percent bigger than the real estate market. The company estimates that its total addressable market opportunity is about $800 billion. Is that close to reality? I don't know. But even if that's off by an order of magnitude, there's still plenty of room for this company to grow. It's also run by two of its three co-founders. If you look at the valuation today, it's rich but not as rich as it was just a few months ago, trading at about 25 times sales and about 100 times forward earnings. Given this company's embedded growth rate, I don't think that's too extreme. So GoodRx, GDRX.
