What happened
Shares of doctor-focused social networking company Doximity (DOCS) plunged 26% in December, according to data provided by S&P Global Market Intelligence. There wasn't any specific news this month leading to the decline, but it follows months of a price decrease as the stock ballooned after its initial public offering (IPO) in June and its valuation skyrocketed. The price has continued falling into January.
So what
Doximity operates a digital networking platform for physicians. It allows doctors and other healthcare practitioners to connect through a mobile device to other healthcare workers and to patients. It has already made its mark on U.S. medicine, with 80% of doctors already registered, and 50% of nurse practitioners and physician's assistants as members, according to the company.
Image source: Getty Images.
The company had a celebrated IPO last June, and its stock soared on its first day of trading from an IPO price of $26 to close 115% higher at $56.
Investors continued to trade the stock up, and it hit a high of $102 in September, or an 82% increase from its first-day closing price. Since then, the stock has dropped precipitously, trading at $47 per share as of this writing, or well below its first-day closing price.
It's certainly not due to the company's performance. In the 2022 fiscal second quarter (period ended Sept. 30, 2021), revenue increased 76% year over year, and net income increased 260% from $10 million last year to $36 million this year.
It's guiding for revenue to increase about 48%, and for the full year to increase about 58%.
Even though the physician community is well penetrated, management sees several avenues toward growth. These include: penetrating other healthcare worker communities, expanding its catalog of features, making acquisitions, upgrading its platform, and further monetizing its services. It sees an $18.5 billion addressable market in U.S. telehealth, health system marketing and staffing, and pharmaceutical marketing to healthcare workers.
Now what
Doximity is a great company with a strong outlook and a dominant position in its niche industry. It has real change-making potential and a healthy moat, all signs of a great growth stock. At the new lower price, it's looking more like a buy. Even at this price, it has a high valuation, with shares trading at a price-to-earnings ratio of about 100 times trailing-12-month earnings. However, that's not unreasonable for a growth stock. There's definitely risk involved with its valuation and high penetration of its core market, but with its dominance and utility, investors should see gains if they buy shares at this price.
