Doximity (DOCS -0.40%) was viewed as an exciting, fast-growing telehealth company when it went public in 2021. Since then, however, investors have cooled to the stock, and it is down 42%. But are investors making a mistake and overlooking a possible gem in the healthcare industry?
Here's a look at three reasons why Doximity makes for an attractive investment, as well as a potentially important reason to hold off on adding the stock to your portfolio right now.
1. A high net revenue retention rate
One of the most important numbers for growth-oriented companies is the revenue retention rate, which tells you how much more (or less) customers are spending with a business compared to the previous year. It's also a good indicator of a company's ability to retain customers.
Doximity's net revenue retention rate is an impressive 117%, which is a fantastic sign that customers are spending more than they did a year ago. That's a big reason why the company's top line continues to grow. For the year ending March 31, Doximity's revenue totaled $419 million, representing a year-over-year increase of 22%.
A strong revenue retention rate suggests that even if the company doesn't add significantly more customers, its top line can still achieve good growth this year.
2. 80% of U.S. physicians use the network
The big allure of Doximity is that its platform is for doctors, effectively being a smaller version of what Microsoft's LinkedIn is for workers as a whole. That can make Doximity incredibly attractive for advertisers and hiring companies that focus on healthcare.
According to Doximity's numbers, an impressive 80% of U.S. physicians are on its network. Rather than advertisers or hiring managers needing to filter through LinkedIn or other social media sites, Doximity makes it much easier to reach healthcare professionals in the country.
3. An $18.5 billion addressable market
It may seem, with 80% of U.S. doctors on its network already, that Doximity may be running out of growth potential. But in reality, it's only getting started. The company estimates that its total addressable market is worth $18.5 billion, broken down as follows: $4.3 billion in telehealth, $6.9 billion in health system marketing and staffing, and $7.3 billion in pharmaceutical marketing.
Source: Doximity Spring/Summer 2023 Investor Presentation.
While companies have been scaling back spending of late amid fears that a recession may be on the horizon this year, in the long run marketing and hiring spending is a big opportunity for Doximity. The company's dialer, which allows doctors to easily connect with patients while maintaining their privacy, gives the business a way to tap into opportunities in telehealth as well.
Growth has been slowing -- drastically
There are many positives around Doximity's business, but there's also an important negative, which is currently weighing down the stock. Doximity's sales are rising, but they are doing so at much more modest rates than in the past.
DOCS Revenue (Quarterly YoY Growth) data by YCharts
It's worth noting that even after the company went public, its growth rate began to nosedive -- well before concerns of a recession were affecting spending. Some slowdown was inevitable, however, as a growth rate of more than 50% is difficult to sustain.
But given that this is a stock that trades at around 60 times its earnings, investors are likely expecting more from the business, which may explain why the stock's performance has been underwhelming since going public. And if there are concerns that things may not be getting any better in the near future, it may be difficult to remain bullish on the stock.
Is Doximity's stock a buy today?
Doximity has the potential to be a great growth stock in the long haul. But I wouldn't buy it today simply because of how sharply things have slowed down for the business, which raises some question marks about the company's future.
There is a big market for Doximity, and it does have many doctors on its platform, but it may not have enough of a competitive advantage to prove that it provides more value to advertisers than LinkedIn, or even Meta Platforms, which provides a way for marketing campaigns on Facebook to target specific user groups. Although Doximity might make that a bit easier, the business still needs to prove itself in that respect, and that it is truly a better option for advertisers and marketers in the healthcare industry.
Until Doximity can demonstrate that, it's a stock that I'd watch but not buy just yet.
