Doximity (DOCS 1.18%) has wowed investors with its solid list of customers, earnings growth, and top market position. The company offers doctors a platform to connect with colleagues, share patients' medical records, catch up on the latest news in their specialty areas -- and more. All this through a free app. It's no surprise that 80% of U.S. doctors use Doximity.

After Doximity's June 2021 initial public offering, it climbed more than 90% in just a few months. Since, the stock performance hasn't reflected the company's successes. Doximity stock has lost 66% from its peak. So far this year, the stock is little changed. Let's consider the bear and bull cases for this innovative healthcare player.

The bear case

Doximity generates revenue by selling advertising to pharmaceutical companies and hospital systems. These clients aim to connect with doctors -- and with so many doctors using Doximity, the platform is an excellent place for healthcare clients to spend their advertising dollars.

But the bears have worried that, in tough economic times, this ad spending could dry up. That was a big concern last year as inflation rose -- and that weighed on Doximity's stock performance. So far, Doximity hasn't seen a significant decline in its customers' budgets, but it remains a risk.

Another potential risk for Doximity is the fact that it is highly specialized. And that could limit growth over time. Once pharmaceutical and hospital clients reach the maximum they aim to spend on the platform, Doximity's revenue opportunity may peak.

Finally, it's important to remember that Doximity, operating in the healthcare space, has to be particularly careful about content. Medical legal reviewers must give certain content the go-ahead -- and any delay in that procedure could result in revenue delays. That happened in the most recent earnings report, causing Doximity stock to dip.

Considering all of this, growth investors may think twice before picking up shares of Doximity. And that makes the stock, trading at 47 times forward earnings estimates, look a bit pricey.

DOCS PE Ratio (Forward) Chart

DOCS PE Ratio (Forward) data by YCharts

The bull case

Still, Doximity has quite an impressive client list -- the top 20 pharmaceutical companies and the top 20 hospital systems. And these clients have shown their loyalty. In the most recent quarter -- the fiscal 2023 third quarter -- Doximity reported a net revenue retention rate of 127% among these top clients.

Doximity works with more than half of the 415 "mega brands" in pharmaceuticals. These are brands that bring in more than $100 million in U.S. sales every year. Even considering this, Doximity only represents about 5% of medical marketing budgets in the U.S. So there's plenty of room for Doximity to grow sales with these big clients -- and add on new clients within the mega brands.

Doximity also has room to grow users within the community of doctors, nurse practitioners, and medical students. In the third quarter, users reached a record high -- driven by Doximity's telehealth offerings. The platform allows medical professionals to conduct virtual medical visits on their phones. Doximity hit record highs in usage across other tools too -- such as scheduling and e-signature.

The company doesn't charge medical professionals to use its app. But getting doctors to sign on and use the system is key to attracting and keeping advertisers. So, the growth we're seeing here is a great sign for the future.

Finally, the company, founded a decade ago, has been able to turn revenue growth into profit. That's something to cheer about. And from this perspective, the stock doesn't look excessively expensive today.

DOCS Net Income (Annual) Chart

DOCS Net Income (Annual) data by YCharts

Bear or bull?

Like all companies, Doximity faces some risks, as mentioned above. And stock performance so far hasn't reflected the company's potential. That may continue to scare off some investors. But, overall, there's reason to be optimistic about Doximity.

The company has a solid client base that has continued to spend during tough times. More and more doctors are using Doximity -- and that should keep clients spending on advertising to reach these doctors. All of this should support earnings growth. And that means there's more reason to be bullish about Doximity than bearish today.