What happened
Shares of GoodRx (GDRX +2.82%) plunged 29.5% in March, according to S&P Global Market Intelligence. The online pharmaceutical service and telehealth platform posted disappointing fourth-quarter earnings results at the end of February and offered poor guidance for 2022. However, toward the end of the month, as growth stocks broadly bounced back, GoodRx recovered a portion of its declines.
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So what
On Feb. 28, GoodRx reported its Q4 and full-year earnings results. Revenue grew 38.9% year over year in the quarter to $213.3 million. While that was a solid growth rate, it undershot analysts' consensus estimate for $217.5 million in revenue. For 2022, management is guiding for revenue growth of 23% to around $917 million. That widely missed analysts' estimates; the consensus forecast had been for revenue of $963 million in 2022.
GoodRx management said it had underestimated how much the COVID-19 pandemic would continue to impact people's willingness to seek out better prices on prescription drugs. (Helping people find those deals is how the company generates revenue.)
The day after GoodRx delivered its disappointing results and uninspiring forecast, the stock dropped a whopping 39%. Over the next two weeks, the share price continued to fall, bottoming out on March 14. Then, as growth stocks and the broad indices trended back upward to close out the month, GoodRx bounced back too, closing down by just under 30% for the period.
Now what
GoodRx has a unique business model. Anyone can use its free mobile application to find the cheapest nearby pharmacy to fill their specific prescriptions -- something that is hard for individuals to do on their own. It then provides its users with coupons to cut their costs further. The company makes its money through referral fees, advertisements, and a subscription service for people who have to manage multiple prescriptions. It's essentially an arbitrage model that takes advantage (in a good way) of the complexities of the U.S. healthcare system.
The company also owns telehealth platform HeyDoctor, and it just acquired VitaCare, a pharmaceutical technology and communications platform. With these acquisitions, GoodRx hopes to build an end-to-end digital service where patients can easily and efficiently manage their prescriptions.
After last month's drop, GoodRx sports a market cap of $7.5 billion. Next year, it is guiding for adjusted EBTIDA margins of 32%. If it hits its guidance for $917 million in revenue and that margin target, the company will generate around $293 million in profits next year, giving it a forward price-to-earnings ratio (P/E) of 25.6. This is only slightly higher than the market average, so if you believe that GoodRx can continue growing revenue at a 20%-plus rate, this could be a good time to buy some shares.
