Despite beating analysts' estimates during its latest quarter, Doximity (DOCS -1.34%) stock took another nosedive after results were released this week. As of this writing, shares of the healthcare networking technologist are down 43% so far in 2022.
However, Doximity is growing at a fast and steady rate and is highly profitable. Investors who like companies using technology to serve customers but who are rattled by the tech sell-off should spend some time getting to know Doximity. Here's why this emerging healthcare leader is worth a look right now.
Image source: Getty Images.
An excellent conclusion to the fiscal year
In Q4 of its 2022 fiscal year, which ended March 31, Doximity reported a 40% increase in revenue to $93.7 million, easily surpassing its own guidance for as much as $90 million provided a few months ago.
No matter how you like to measure the health of a company's bottom line -- be it an adjusted measure like EBITDA, free cash flow, or net income -- Doximity delivered during the last quarter.
|
Profitability Metric |
3 Months Ended March 31, 2022 |
Change (YOY) |
% of Revenue |
|---|---|---|---|
|
Adjusted EBITDA |
$39.4 million |
48% |
42% |
|
Adjusted net income |
$44.9 million |
87% |
48% |
|
Net income |
$36.7 million |
71% |
39% |
|
Free cash flow |
$44.9 million |
23% |
48% |
Data source: Doximity.
Doximity has done a fantastic job building a marketing, recruiting, and telehealth solutions hub. It boasts having the top 20 hospitals and top 20 pharmaceutical companies as customers. It's now starting to enjoy expansion among mid-sized companies in the space. As existing customers are expanding their spending and new customers are joining Doximity's app, management was comfortable forecasting roughly 33% revenue growth for the current fiscal year -- all the while maintaining a lucrative adjusted EBITDA margin of about 43%.
Given the fantastic quarter and outlook, why is the market down on Doximity stock? It seems the guidance was the issue -- specifically pertaining to the first quarter of the fiscal year. Though management is expecting 33% full-year growth, Q1 sales are expected to be $88.6 million to $89.6 million. That represents a dip in revenue from the just-reported quarter, and only a 23% year-over-year increase at the midpoint of guidance. What gives?
About the business outlook...
Doximity's team noted during the company's conference call with analysts that the company saw "atypically high" revenue in its Q1 of last year due to a "significant pull-forward of demand."
William Blair analyst Ryan Daniels pointed out on the earnings call that pre-pandemic, Doximity saw an 18% decline from Q4 fiscal 2019 to Q1 2020, and this year the sequential decline is only expected to be about 5%. CFO Anna Bryson confirmed this and said revenue growth is expected to accelerate through the rest of the year.
Thus, I'm not sweating Doximity's growth guidance. After the earnings update, the stock now trades for 43 times price to last year's earnings per share, and 29 times enterprise value to the next year's expected adjusted EBITDA. Sweetening the deal, the board of directors gave the go-ahead on a $70 million share repurchase program. Given the company's high profit margins and $798 million in cash and short-term investments (and zero debt!), share repurchases look like a great use of capital after the recent stock drop.
In a market that has completely soured on high-growth but low- or no-profit tech stocks, Doximity stands apart as a company that can deliver growth and ample cash flow. And even at this early stage of its existence, this healthcare platform is returning some of that excess cash to shareholders. I believe this will be a winning combination during this period of extreme anxiety.
