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This Healthcare Stock Has a Huge Reach and Massive Revenue Growth Potential

By Matthew Frankel, CFP® and Danny Vena – Nov 8, 2021 at 11:45AM

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Amazing market penetration and untapped revenue potential make a nice combination.

Doximity (DOCS) has been an impressive growth story so far, with more than 80% of physicians in the United States on the platform. However, in this Fool Live video clip, recorded on Oct. 18, contributor Danny Vena explains why he thinks Doximity could be just getting started when it comes to realizing its true potential. 

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Danny Vena: This is a company called Doximity, ticker D-O-C-S. Now, Doximity has been called the LinkedIn for doctors, but that really sells the company far short of what it does.

Consider in a doctor's office, they need tools where they can securely coordinate their patient care, they want to conduct virtual patient visits. They want to stay up-to-date on the latest medical news and research, manage their careers, collaborate with colleagues, and there really wasn't a single application that could handle that before Doximity came along. Essentially, if you were in a doctor's office, you were cobbling together a number of different softwares to do everything that you needed to do, which is where Doximity comes in.

Now, the thing that really is driving the train right now, is the fact that while they're building out all of these other areas, it also acts as a platform where pharmaceutical reps can provide updates to the doctors on the latest drugs. This is something that doctors, rather than having to go search for all of this recent research, and try to find out where these drugs are in their Phase III trials, etc., they can get updates directly from the pharmaceutical manufacturers, which is good news for them. But the thing that I found really intriguing about this was just how extensive the network is for this company.

In their S1 when they filed just before their IPO, which was back in June, the company said that it has more than 80% of the physicians in the U.S., over 50% of the nurse practitioners and physician's assistants, and 90% of the graduating medical students in the country are currently using its platform in some form or another. Now, it also provides telehealth services, secure messaging, digital faxing tools; that one struck me, faxing? Well, but if you think about doctor's offices, they actually still send patients' records, they have to send them securely, but they also need to send them digitally.

I don't know about you, but I've been at a doctor's office within the last couple of years, and actually saw a fax machine sitting around it and I was blown away that people are still actually using a fax outside of a construction office, that's the only other place that I've seen one. Again, they have over 300,000 unique active health providers that are using its telehealth tools. Now, this is as of the first quarter. They have not updated this, and I don't think they're going to update it every quarter, I think this is one that you're going to hear about occasionally. But now this includes over 150 health systems, and six of the top 10 hospitals and health systems in the U.S.

As a result, this is really causing some pretty impressive financial results. In fact, in the quarter ended June 30th, their revenue was about $73 million, that was up 100% year-over-year. Now, admittedly, that's from a small base, so keep that in mind. Their net income, they are net income positive, they had net income of $26.3 million compared to $1.5 million in the prior-year quarter. This is a massive increase in their net income as they begin to leverage their user base. In fact, the company said that 80% of its growth last quarter came from existing customers.

They are expanding the usage by the customers that they already have, while they are getting new customers. Their net revenue retention rate up 167%, and what that means is that their existing customers spent 67% more on average this year than they did this time last year. They also announced that they have 224 customers that now spend $100,000 or more over the trailing 12-month period, which is up 58% year-over-year. They said that roughly half of those are new customers. You have some customers that are jumping onboard and immediately spending six figures, which is pretty impressive in my book.

This is one that I have been watching since the IPO, they've already got their first-quarter out, it was impressive. I'm waiting for the second-quarter numbers to come out and see if they continue that trend. But I have to say this is one of the ones that I was tempted to jump into immediately and reined myself back in because you don't know if that type of growth is going to continue, and also the fact that, like I said, it's growing from a small base. This is again, a company that has some impressive initial results, and I want to see if those numbers can continue in the near-term.

Matthew Frankel, CFP® 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.

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