As hundreds of growth stocks sold off amid rising interest rates and a tumultuous market in 2022, even strong operators were caught up in this drop's wake. This divergence between shorter-term movements, which are tied to quarterly earnings concerns versus a company's longer-term prospects, often allows investors good entry points on strong businesses.
Three to consider today are Doximity (DOCS 0.74%), Coupang (CPNG 0.97%), and InMode (INMD +5.84%). All struggled in the market last year, but grew more robust by a number of meaningful measures. So if you are armed with some extra cash as we move into 2023, these three companies may be great opportunities.
NYSE: DOCS
Key Data Points
1. Doximity
With roughly 80% of physicians and 90% of graduating medical students as members, Doximity's medical professional platform has burgeoning network effects that investors should not ignore. Considering that physicians influence around 73% of the $4 trillion United States healthcare industry, it is undeniable that Doximity's reach among medical professionals gives it advantageous positioning in the market.
Thanks to this widespread adoption within the medical community, the company's newsfeed on its platform is an incredibly appealing advertising space for pharmaceuticals and health systems (such as hospitals). Whether a pharmaceutical brand wants to build awareness for its product or a hospital hopes to highlight its clinical specialties, this exposure to physicians has quickly become a must-have for healthcare enterprises.
With a 17 times return on investment (ROI) for its health systems customers and an 11 times ROI for its pharmaceutical clients, according to the company, Doximity already counts each of the top 20 U.S. health systems and pharmaceutical companies as customers.
This makes Doximity's 128% dollar-based net retention rate the critical metric to watch moving forward. This indicates how much more existing customers spent from one year to the next (including customers lost to churn). A mark above 120% is considered exceptional.
After growing revenue by 29% while recording a net profit margin of 26% in its most recent quarter, Doximity trades at a premium price-to-earnings (P/E) ratio of 51. However, due to its massive medical professional network, early profitability, and strong growth, Doximity makes for a double-up candidate as an outstanding company trading at a fair price.
2. Coupang
Making up about one-sixth of the $120 billion South Korean e-commerce industry, founder-led Coupang is the country's dominant online retailer. After growing sales by 27% (on a foreign exchange-neutral basis) during the third quarter of 2022, Coupang continued to expand its share of the Korean market.
While this continued growth helped the stock double from its 2022 lows, it remains down over 60% compared to its initial public offering (IPO) in 2018.
NYSE: CPNG
Key Data Points
Leading this recent resurgence in share price is Coupang's newfound profitability in Q3 -- not just in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), but GAAP net income. Thanks to South Korea's high population density and the company's investments in its fulfillment infrastructure, Coupang is finally starting to realize some significant efficiencies of scale.
After reporting a staggering 64% increase in gross profits year over year in Q3, Coupang recorded its first-ever quarter of profitability.
CPNG Gross Profit Margin (Quarterly) data by YCharts
Having built over 500 soccer fields' worth of fulfillment infrastructure since its inception, Coupang is poised to become a margin expansion story as it streamlines its operations across its massive network. With CEO Bom Kim targeting long-term EBITDA margins of 7% to 10%, Coupang's large and steadily growing base of $20 billion in annual sales could propel its $30 billion market capitalization higher.
Best yet for investors, Coupang's developing offerings, such as restaurant ordering and delivery (Eats), video streaming (Play), fintech, and international, are all in their infancy. Now with its core e-commerce network built out and profitable, look for the company to shift spending to these younger initiatives -- providing extra reasons for investors to double down on Coupang today.
3. InMode
With its non- and minimally invasive alternatives to plastic surgery and less effective laser treatments, InMode's radiofrequency (RF) technologies have grown rapidly in popularity over recent years. Whether consumers are looking for body and face contouring, skin tightening, or wrinkle, cellulite, and acne scar removal, the company's four core technologies provide an impressive array of solutions.
Highlighting its rapid adoption, InMode quadrupled sales of its patented equipment to physicians since its IPO in 2019, while its stock rose five-fold over the same time.
This is despite experiencing an incredible drop from its all-time highs in 2021, as most growth stocks were pumped to near-bubble territory only to be sold off heavily throughout 2022.
NASDAQ: INMD
Key Data Points
However, InMode is not your stereotypical "growth" stock. With a 41% net income margin (to go along with a 27% free cash flow margin), the company is the rare upstart offering incredible growth rates on both the top and bottom lines. Over the last three years, InMode has delivered annualized sales and earnings-per-share growth of 46% and 53%, respectively.
On top of this, the company may still be in the early chapters of a razor-and-blade model growth story. With 88% of revenue coming from sales of InMode's capital equipment to doctors' offices across the globe, the remaining 12% coming from consumables and services is set to snowball over the long term. Speaking to this point, CEO Moshe Mizrahy explained: "As our installed base grows and we expand our market share, consumables and service will contribute a more significant portion to the revenue mix going forward."
With a P/E ratio of 17 -- well below its average of 27 -- and sales growth of 29% in its most recent quarter, InMode shares are trading at an attractive price. Pair this valuation with the fact that the company still only generates 34% of its sales from outside the U.S., and InMode's international growth runway makes it an outstanding stock today.
