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Why Doximity Plunged Nearly 13% Today

By James Brumley – Aug 26, 2021 at 4:32PM

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An analyst only stated what had become relatively obvious about this young stock.

What happened

Shares of the social networking site for medical professionals Doximity (DOCS -0.34%) tumbled to the tune of 12.8% on Thursday, mostly in response to a downgrade from J.P. Morgan. Analyst Jackson Ader fears the big 250% run-up from its June IPO price of $26 per share has run its course, and then some.

So what

Don't sweat it if you haven't heard of Doximity; most people haven't. The obscurely focused networking website catering to the medical community has only been a publicly traded enterprise for a couple of months, and went public in the midst of plenty of other noise.

But what a couple of months it's been! Shares bolted higher on their first day of trading and never really looked back.

A rising bar chart representing dollars starting to fall.

Image source: Getty Images.

That is, until now. J.P. Morgan's Ader says the stock's valuation following the oversized rally is strained relative to revenue, prompting him to downgrade shares from overweight to neutral.

Now what

To be clear, Ader's concern is limited solely to the stock's price and not the company's operation. He's an avid fan of the idea, arguing Doximity is positioned well for the time when the healthcare industry -- and pharmaceutical manufacturers in particular -- start rethinking how they market their products while hospitals and clinics revisit how they recruit employees.

Nevertheless, his view that the stock is overvalued given the current circumstances is a valid one. The shares took on something of a life of their own following the public offering, with the last leg of the rally seemingly driven by the fear of missing out. That's the sort of gain that leaves a stock vulnerable to profit-taking, and Ader may have just begun that process. His current price target is $70 per share, down 12% from Thursday's close.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Doximity Stock Quote
$35.63 (-0.34%) $0.12
JPMorgan Chase Stock Quote
JPMorgan Chase
$132.16 (-0.54%) $0.72

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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