GoodRx Holdings (GDRX -0.70%) helps patients save on pharmaceutical medication. And at a time when inflation is high, there could be significant value in its services. However, investors are down on this growth stock as it recently released an earnings report that left them wanting much more.
But with shares of the company down a whopping 40% in just the past month while the S&P 500 has only declined by 4%, the stock could be too cheap to pass up at its current price, which is near its 52-week lows. Below, I'll look at how badly the company did in its most recent quarter, and assess whether this is a good investment to add to your portfolio right now.
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Missed expectations and an underwhelming forecast
The healthcare company released its fourth-quarter results on Feb. 28. Revenue for the period ended Dec. 31 totaled $213.3 million, marking a 39% year-over-year increase. But despite the strong growth, that was still below analysts' expectations of $217.5 million. The company blamed the disappointment on underestimating how long COVID-19 would disrupt its business. With patients not making as many trips to doctor's offices, that has resulted in fewer prescriptions, which hits the core of GoodRx's business that focuses on helping patients save on their medication.
That was a minor miss, however, and the bigger disappointment lay in the forecast. For all of 2022, GoodRx anticipates its top line will grow at a rate of 23% and reach $917 million. Analysts, meanwhile, were looking for guidance that would have called for at least $963 million in sales. It's a big miss on the forecast, but given how unpredictable the past couple of years have been, it's possible the company is just exercising some caution.
Are investors overreacting?
GoodRx's business has been generating some strong growth numbers. It's impressive especially when you consider that it has to contend with online retailer Amazon, which launched its pharmacy business in November 2020. Then there's big-box chain Walmart, which is moving more into healthcare and has already been offering low-cost prescriptions for years. Its new subscription service, Walmart+, now also gives patients additional savings, including some medications at no cost and increased price reductions on others.
Competing against these incredibly large businesses is no small task, and that could indeed make it more difficult for GoodRx down the road, especially as that may mean more money spent on advertising and promotions. In 2021, GoodRx's sales and marketing expenses totaled $370.2 million and rose 45% from the previous year. And at 50% of sales, they also accounted for more of the top line than they did a year ago, when that percentage was just over 46%. Those numbers could continue to rise if competition intensifies.
GoodRx reported a net loss of $39.9 million in Q4. It has now incurred a loss in four of its past six quarterly results. A potentially more challenging environment (i.e., growing competition) could make sustainable profits more difficult to achieve.
Is GoodRx cheap enough to buy, despite the risks?
A year ago, GoodRx's stock was trading at well over 20 times its sales. Today, it's down to a price-to-sales (P/S) multiple of just over 9 after its shares have crashed more than 60%. Yet, that's still significantly higher than for the sector -- as measured by the Health Care Select Sector SPDR Fund, which trades at a P/S multiple of less than two. And while growth stocks normally command a premium, GoodRx's growth appears to be slowing, even amid economic reopenings and diminishing pandemic restrictions. Investors should also be wary of the competition it faces from Walmart and Amazon, which could limit the growth GoodRx achieves and also put more pressure on its already struggling bottom line.
GoodRx's valuation remains high -- and with a growth story that may be in trouble, this is not a stock I would take a chance on today.
