Ever since Doximity (DOCS -2.51%) went public in June 2021, the stock has been commanding a significant premium. Unsurprisingly, as investors have become more focused on valuations and earnings multiples, shares of Doximity have been falling in value and are down 38% year to date.

Investors may be wondering if this has created a buying opportunity for a business that still sees plenty of growth in its future. Is now the time to buy shares of Doximity, or should investors wait for more of a drop in price before adding it to their portfolios?

The company's fundamentals are solid

One of the reasons investors may have been inclined to ignore the high price of Doximity's stock in the past was because of the company's strong, underlying fundamentals. Doximity's business centers around being a social network for doctors, not unlike Microsoft's LinkedIn, which is open to the general public. By improving workflow, making it easy to stay on top of news, and connecting with peers and patients, there are many reasons doctors might find Doximity useful. And according to the company, 80% of U.S. physicians use it.

Doximity primarily makes money from companies that pay for marketing on the platform and by offering hiring solutions for businesses. For the period ended Sept. 30, sales rose 29% year over year to $102.2 million. And with a strong gross margin of 87%, Doximity had no trouble turning a profit, with its operating income of $32.1 million also rising by 29%.

For the last quarter of the year, the company projects that its top line will rise to between $110.7 million and $111.7 million. Given the softness in the marketing and advertising markets these days, any kind of quarter-over-quarter rise is impressive right now. But while Doximity's growth is looking good, it's questionable whether that's enough to justify its hefty earnings multiple.

The stock still trades at about 50 times earnings

To get an idea of how truly ridiculous Doximity's valuation has been over the past year, only a chart could do justice here:

Chart showing a fall of over 24 points in Doximity's PE ratio in 2022.

DOCS PE Ratio data by YCharts

Investors have been paying massive multiples for Doximity's stock. Even today, it still looks expensive when you consider that the average S&P 500 stock trades at less than 20 times its profits. But on any metric you look at, the stock looks incredibly expensive, with a price-to-sales multiple of 18 and a price-to-book ratio of 7.

To be willing to pay that much of a premium for the stock, you have to be incredibly bullish on its future and be patient enough to hold the stock for years.

Why I wouldn't buy the stock right now

Doximity's stock could fall lower next year, as its two areas of business, marketing and hiring, could stall as companies look to shed costs amid a possible recession. And its growth rate has already been slowing sharply of late.

Chart showing steep fall in Doximity's quarterly YOY revenue growth in 2022, with slight recent rebound.

DOCS Revenue (Quarterly YoY Growth) data by YCharts

While there's no denying the strength in Doximity's business, it's hard to claim that a stock with a slowing growth rate -- that could slow even further next year -- is worth an incredible 50 times earnings. I'd wait to see if the healthcare stock gets down to a more reasonable multiple of 30 or less before taking a chance on Doximity, as it still looks grossly overvalued.