Doximity Inc. (DOCS, Financial) appears at first glance to be a health care stock, but it's also a tech stock. In fact, Doximity operates in telehealth fielding education, promoting communication and improving access to care while lowering patient costs. Doximity is one of the largest telehalth networks, linking over 2 million verified subscribers who are medical and health care professionals.
Like many other high-growth tech stocks, Doximity's share price has been suffering, with shares down 34.4% over the past 12 months. To get the bigger picture, the S&P 500 Information Technology Index has a one-year decline of just 10.15%, while its health care counterpart has a one-year delcine of 2.39%, so Doximity is underperforming the market on all fronts.
The bright side for investors is, this may provide us with an attractive value opportunity.
About the company
Doximity is only a 12-year-old company. Its cloud-based digital platform networks physicians and colleagues who exchange HIPAA-secure messages. Subscribers gain access to research and peer articles. They can discuss the findings and reports with authors and one another. Members conduct telehealth secure conferences with patients over the platform.
Telehealth is a fast-growing means of medical communication and knowledge sharing that gained impetus during the beginning of the Covid-19 pandemic. The paradigm shift is being institutionalized in the health care delivery system.
According to a 2021 survey, “More than 63 million virtual visits were conducted on Doximity’s platform in the fiscal year ending March 31, 2021. According to the Doximity’s State of Telemedicine, $106 billion of current U.S. healthcare (spending) could be virtualized by 2023.”
Doximity is user-driven. Medical journal articles read through Doximity can earn personnel category 1 CME credits.
By the numbers
GuruFocus gives Doximity a hearty 9 out of 10 ranking for financial strength. as well as a 6 out of 10 ranking for profitability, though there is not enough data on the company to calculate its growth, momentum or value rankings.
GuruFocus warns of two severe warning signs for Doximity, which are a Sloan ratio that shows poor quality of earnings and a Beneish M-Score which implies potential accounting manipulation.
The forward price-earnings ratio is a high of 48.5. Short interest is 11%, suggesting the share price still pushes against headwinds that potentially lower the confidence of investors. However, the short interest number is down from 21.8% last December.
The share price of the $6.38 billion market cap company hit $102 eight months earlier, though the share price now is only a third of that.
Goldman Sachs (GS, Financial) has put out a buy rating for the stock. Their analysts took positive views on Doximity and the health care technology sector over the long-term, foreseeing telehealth companies improving patient care and outcomes while cutting costs.
In May, Doximity reported fiscal fourth quarter revenue of $93.65 million, beating estimates by $3.48 million. Its non-GAAP earnings per share were 21 cents, beating estimates by 6 cents. Ebitda margins popped from 40% previously to 42% in the fiscal fourth quarter. The company forecast revenue of $454 million to $458 million for the next full fiscal year and $567.6 million in the fiscal year 2024.
Below $34 per share, I believe Doximity stock represents good value. When the stock market environment improves and the selling trauma ends, I estimate the stock might rise as much as 30%. My target price is $45 per share.
Corporate insiders are buying shares of this stock as well. Insiders spent $584,600 on buying Doximity shares in the last three months. Hedge funds, too, bought nearly 4,000 shares last quarter.
Healthy future
Doximity’s future looks healthy, in my view. The health care industry offers a good return on equity (~7%). Doximity is above that average at 27%. The company is one of the largest in a field that is expected to represent a $106 billion market in the next few years.
Doximity has no debt, and telehealth is expected to grow in the long-term. Doximity’s board recently approved a stock repurchase program of up to $70 million of common stock beginning this quarter.
There are caveats, though. For one, Doximity will continue to be classified as a tech stock. The share price will flow with that industry, and tech growth stocks are very much out of favor with the market right now.
Doximity generates revenue through subscriptions and advertising. Private medical practices have been shutting down for more than a decade, and Covid accelerated this trend. Concomitantly, nurses, doctors and other health care providers are choosing to retire in such great numbers there are medical deserts. All this might slow Doximity's growth. Innovating means of monetizing Doximity is the primary challenge management faces, but unfortunately, this model is proving to not be enough financial incentive to keep many medical professionals from early retirement.
