Growth stocks are crumbling fast these days. Inflation and geopolitical issues have contributed to top stocks like Apple and Amazon falling more than 20% since the start of the year. That's even more of a sell-off than the S&P 500 and its 17% drop in value.
While those businesses could face headwinds this year as inflation and supply-chain issues weigh on their operations, there's one growth-oriented company that has fallen this year but still expects strong performance in its current fiscal year: Doximity (DOCS 2.74%).
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Expecting revenue to grow by more than 30%
For its fiscal year ended March 31, the networking and telehealth company reported sales of $343.6 million, up 66% from a year ago. Physicians use Doximity's platform to collaborate with peers and receive curated news. The company also has a video app that makes it easy for them to connect with patients, not unlike a telehealth service. Some people have compared Doximity to Microsoft's LinkedIn, but for medical professionals.
And despite already calling itself the "largest community of healthcare professionals in the country," the business continues to anticipate even more growth. For the current fiscal year, Doximity forecasts that its top line will grow to between $454 million and $458 million. It's a continuation of what has been an impressive growth story thus far.
Source: Company filings. Chart by author. Fiscal 2023 numbers are per guidance.
Over a two-year period, Doximity will have more than doubled its top line. And at the same time, its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) will triple. The company's adjusted earnings per share of $0.21 last quarter also soundly beat analysts' expectations of $0.15.
These are all positive signs that the business is growing while also keeping its expenses in check. Many high-growth companies will see their costs soar and won't generate as much improvement in their bottom lines. Arguably even more important is to have strong cash flow (especially while inflation is high), and that's also looking strong for Doximity.
Free cash flow has been surging too
If a growing business isn't generating lots of cash, that can spell trouble for investors as it can mean large stock offerings and dilution may be inevitable. When it comes to Doximity, however, the business has also been bringing in more money while growing its operations. This past year, free cash was $120.9 million, up from $78.4 million in fiscal 2021.
Source: Company filings. Chart by author.
Although the company didn't offer a specific guidance with respect to cash flow, it's likely that as its adjusted EBITDA expands, so too will its cash flow. That puts Doximity in a great position to continue reinvesting in its business and making it even stronger over the long term.
Doximity could be a bargain buy
Even though Doximity is growing and posted some strong results recently, shares of the healthcare stock remain around 52-week lows.
NYSE: DOCS
Key Data Points
At a multiple of around 40 times earnings, the stock may not look like a cheap buy today. However, earnings numbers can change quite quickly for a fast-growing business like Doximity. That multiple will come down over time, especially given its high profit margin of around 45% of revenue.
At its current price, Doximity could look like a bargain in a few years. While its shares are struggling today, that shouldn't dissuade investors from adding the stock to their portfolios.
