Shares of the social media platform for healthcare professionals Doximity (DOCS -0.07%) shot up on Friday, Nov. 11. Investors reacting to a positive third-quarter earnings report drove the stock about 33% higher in a single session, but the stock has already given back some of those gains.
Now, savvy investors are wondering whether the post-earnings bump they experienced recently is the beginning of a much longer bull run.
Does Doximity have what it needs to deliver long-term gains, or was the latest big bump just a flash in the pan? Before we talk about where this unique business is going, let's look at the factors that just pushed it higher.
Why Doximity stock shot higher
A couple of days before Doximity reported results from its fiscal second quarter ended Sep. 30, 2022, GoodRx reported declining total revenue, suggesting pharma companies are pulling back on their advertising budgets. Doximity operates a social media platform that receives a lot of advertising dollars from the pharmaceutical industry, and investors feared the worst.
Doximity stock rose dramatically because whatever is pressuring GoodRx didn't carry over to Doximity. The company reported an impressive 128% net revenue retention rate in its fiscal second quarter. In other words, the average client spent 28% more than they did a year earlier.
Doximity also reported total revenue that soared 29% year over year. Strong growth with impressive customer retention rates suggests Doximity is one of the last places healthcare advertisers will consider withdrawing from in the event of a prolonged economic slowdown.
How Doximity could continue climbing
Doximity doesn't allow doctors to upload their own posts in an attempt to gain notoriety. Instead, it keeps users coming back with productivity tools designed for clinicians, not their employers. Around 80% of healthcare-related documents are still sent via snail mail and fax machines, so clearly, there are many opportunities available for making physicians' lives easier.
Right off the bat, Doximity is an obviously great place for doctors who don't work side by side to coordinate patient care. With around 80% of all U.S. physicians already on the platform, it's also a top option for health systems trying to recruit.
Doximity keeps physicians highly engaged with productivity tools that healthcare systems are willing to pay for. For example, Doximity Dialer lets physicians contact patients from their personal devices while using their office's phone number.
In the third quarter, around 370,000 unique healthcare providers used Doximity's telehealth tools more than 200,000 times per day on average. With this level of popularity, it's not surprising that every one of Doximity's enterprise telehealth customers renewed their contracts this year.
Doximity estimates the opportunity for U.S. pharmaceutical marketing to medical professionals at $7.3 billion annually, and this is just one of three primary revenue streams the company is targeting. Combining health-system staffing and telehealth software with pharma marketing inflates the company's total addressable market to $18.5 billion.
Doximity expects total revenue to land between $424 million and $432 million this year. With services that pharma marketers and hospital staffers clearly appreciate, plus a large market to grow into, we could see rapid growth for many years to come.
Image source: Getty Images.
Running the numbers
Doximity is quickly growing into an all-new niche market it created, but it's still a somewhat risky stock to buy. It's currently trading at around 47 times trailing-12-month earnings. If revenue and profits continue rising by more than 20% annually for several years, investors who buy the stock at recent prices will come out miles ahead.
Investors should also understand that Doximity's high earnings multiple means the market is fully expecting growth at a double-digit percentage from year to year. If the company can't meet this expectation for any unforeseen reason, investors could suffer heavy losses.
A high earnings multiple isn't necessarily a dealbreaker for this stock. If your financial situation can handle some risk, adding shares of Doximity to a well-diversified portfolio looks like a smart move to make right now.
