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Doximity: Great Future, but Wait For Better Price
Stock Analysis & Ideas

Doximity: Great Future, but Wait For Better Price

Doximity, Inc (DOCS) operates a software-as-a-service (SaaS) platform that facilitates virtual visits, collaboration, and other tools for medical professionals. The company went public via IPO in June 2021.

I am neutral on DOCS stock. (See Analysts’ Top Stocks on TipRanks)

A Trend Here to Stay

The COVID-19 pandemic necessitated the need for different ways to do business. This is true of all sectors, and the medical sector is no different. Many providers began to offer virtual consultations and, when possible, treatments during the pandemic.

With the pandemic hopefully waning, this trend may lessen. However, much like working-from-home trends, virtual visits are not going away. They are efficient, convenient, and both patients and providers benefit.

According to the Centers for Disease Control (CDC), telehealth visits increased 154% during the early days of the pandemic in the United States. The CDC also points out that telehealth can improve access for patients who may not be able to travel. Additionally, it can reduce the transmission of infectious diseases during office visits that aren’t necessary. It saves on supply costs and has many other benefits as well.

In short, telehealth was a lifeline during the pandemic, consumers and providers will continue to demand it, and it will continue to grow into the future.

Rapid Growth with Extended Valuation

When discussing Doximity’s results, it is important to note that its Fiscal Year ends March 31. Therefore, Q1 FY22 refers to the period ended June 30, 2021.

Doximity reported its first post-IPO results on August 10, 2021, for Q1 FY22. In this quarter, revenues grew an astounding 100% year-over-year. In addition, the company added 24,000 more physicians to its telehealth platform.

The company is also net profitable, which distinguishes it from many other growth stock plays. In Q1 FY22, the company reported 26.3 million in net income. This amounts to just $0.09 per diluted share, however, as the company has a large share count relative to its current size.

The company also has an impressive EBITDA margin of nearly 43% and posted operating cash flows of $33.2M. This level of margin will allow the company to be quite profitable and generate significant cash flows if it can scale successfully.

Investors should remember that for most of this quarter COVID-19 was still rampant and many municipalities were under restrictions. Vaccines were just beginning to be distributed to the masses. Q2 FY22 will be a larger test, and Q3 even greater than that.

As restrictions let up, the staying power of Doximity’s growth will be put to the test. Management is forecasting a small increase in revenue in Q2 FY22 to $73-74 million.

The valuation is also a concern. Right now DOCS stock is trading at around a 44x price-to-sales ratio on a forward basis (March 2022). This is a tough sell even in this aggressive market.

Further, many stocks post-IPO will experience an initial jump followed by a significant period of pullback. That appears to be the trend for DOCS stock as investors exercise caution. There will likely come much better entry points in the near future.

Wall Street’s Take

Over on Wall Street, Doximity has a Moderate Buy consensus rating. Four analysts have Buy ratings, joining three Hold ratings. Notably, one hold rating comes with a $40 price target, or more than 35% lower than the current price.

The average Doximity price target of $62.86 implies 14.8% downside from the current price.

Conclusion On Doximity

Doximity is a company that has stepped in to fill a need in society admirably. The pandemic has changed many things, and healthcare is no exception.

Telehealth is here to stay. The big question is how quickly it will be adopted after it is no longer a necessity. DOCS is well-positioned to be a leader in the field; however, the stock is currently priced too high in my opinion. Add this one to a watch list and wait for a more favorable entry point.

Disclosure: At the time of publication, Bradley Guichard did not have a position in securities mentioned in this article.

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