Shares of Doximity (DOCS 0.97%), an online platform for U.S. medical professionals, are down by about 39.9% from a high-water mark they made in February. The bottom recently fell out from under the stock after management lowered its forward outlook.
The pharmaceutical and medical technology companies that buy lots of advertisements on Doximity's platform are taking a step back, but they haven't vanashed. Let's weigh the company's near-term pressures against its long-term prospects to see if it could be a good stock to buy on the dip.
Why Doximity stock fell hard
On Aug. 8, Doximity reported arguably positive results from its fiscal first quarter that ended June 30. Total revenue was up 20% year over year, and net income according to generally accepted accounting principles (GAAP) climbed 27% year over year.
Wall Street looked right past Doximity's fiscal first-quarter performance and instead focused on a downward guidance revision. In May, the company told investors that fiscal 2024 revenue would reach $503 million at the midpoint of its guided range. Now, management expects revenue to land in a range between $452 million and $468 million.
The company also made investors extra nervous by announcing a workforce reduction. The company will let go of around 100 employees, or 10% of its staff.
Doximity's advertising clients include all the top 20 pharmaceutical companies. According to Doximity, digital ad spending by the pharma industry has grown at half the mid-teens percentage rate that management predicted last year.
The company recorded record-breaking sales during the winter upsell season, when ad agencies make roughly two-thirds of their annual spending commitments. Unfortunately, its sales teams missed their targets during the upsell season this June and July. That marked two straight years of slowing sales during the upsell season.
Image source: Getty Images.
The good news
There are still plenty of reasons to be bullish about Doximity. In its fiscal first quarter, more than 525,000 unique prescribers used the company's physician workflow tools.
Doximity employs a freemium business model to promote its suite of tools, and it converts well. During the fiscal first quarter, 44% of all U.S. physicians had enterprise-level access through a paid subscription.
Demand for Doximity's tools could hit an even higher gear now that it's signed deals with three top health systems for DocsGPT, a privacy law-compliant writing tool that helps busy doctors send out new insurer appeal letters in even less time than it takes insurers to deny them.
Despite this year's rough upsell season, Doximity is still targeting $1 billion in total revenue in fiscal 2028. That works out to annual top-line growth of roughly 21.5% over the next four years.
A buy now
Avoiding beaten-down Doximity stock would make sense if the business was losing money, but it's actually quite profitable. Over the past year, Doximity generated net income at an impressive rate of 27% of total revenue.
At recent prices, you can buy shares of Doximity for just 30 times forward-looking earnings expectations. If the company meets its 2028 revenue expectation and maintains profit margins, investors who buy at recent prices could realize market-beating gains.
Of course, there are no guarantees that Doximity can overcome its recent slowdown to eventually meet expectations. Another negative outlook revision could also lead to swift and heavy losses. As long as you have a moderate tolerance for risk, adding some shares of this stock to a diversified portfolio looks like the right move.
