Investing in an IPO is never a sure thing. This year will mark a decade that Meta Platforms (previously known as Facebook) has been public. Its 720% returns since its IPO likely have many cautious investors wishing they could have a do-over. However, being conservative would have helped them dodge a bullet with another social media stock, Twitter, which is down 19% since it went public in 2013.
Doximity (NYSE: DOCS) is a bit of a cross between social media and healthcare (its network is for medical professionals), and it had its IPO last year. Its investors have already experienced lots of volatility, with both a boom and a bust period. Below, I'll look at what a $10,000 investment in that IPO would be worth today, and whether the stock is worth adding to your portfolio.
Image source: Getty Images.
Unless you bought Doximity as soon as possible, you'd probably be in the red
When Doximity's shares first began trading on June 24, 2021, they opened at a price of $41.17. But by the end of trading that day, they would soar 29% to a closing price of $53. At the open price, a $10,000 investment would have allowed you to acquire roughly 243 shares of the company. Today, those shares would be worth $11,178, good for a modest profit of just under 12%.
Unless you were really lucky, you probably wouldn't have gotten the healthcare stock at the open price. And if you bought at the closing price, your investment would be down more than $1,300 right now. Things started out fast for the company, with its shares rising to more than $107 by September 2021. But since then, the wheels have come off and Doximity is trading at less than half that price, leading to the inevitable question:
What went wrong?
Doximity has released two earnings results since going public. The first one was for the first quarter of fiscal 2022 (period ending June 30, 2021), where it reported sales of $72.7 million which doubled the prior-year period's total. Net income of $26.3 million was also more than 17 times higher than the $1.5 million profit the company reported a year earlier. This was before the lead-up to the stock reaching its peak in September.
By the time the company issued its second-quarter results on Nov. 9, 2021, its shares were already trading around the $70 range, likely to do with general softness in the market, particularly around growth stocks. For Q2, Doximity's sales of $79.4 million hadn't doubled -- but they were still up 76% year over year. And profits of $36.1 million more than tripled the prior-year numbers. There was no big sell-off on the results, but the stock did continue its gradual decline.
So in truth, there was nothing the company did wrong since going public. The problem, as often can be the case with IPOs, appears to be due to price.
Doximity was (and still is) an extremely expensive stock
Although many growth stocks have come under a reality check in the past few months, Doximity went public just before that happened. But even today, the stock trades at a multiple of over 100 times its profits, and its price-to-sales (P/S) ratio is above 30. Even the rapidly growing tech giant Amazon, where investors are not hesitant to shell out a premium for the stock, doesn't trade nearly as high; its earnings multiple is around 60, and it has a P/S ratio of less than four.
And what's remarkable is that if not for the stock's significant fall, Doximity would have been trading at even higher premiums than it is right now.
Is Doximity a buy today?
Doximity has an attractive business, with gross margins north of 85% and the company netting 30% of revenue as profit over the past 12 months. But with cheaper growth stocks available, it's not an investment I would consider today. The business simply isn't growing at a fast enough rate to justify the wild premium Doximity's stock is at right now, and that means there's the danger that its shares will fall even further in the weeks and months ahead.
