Doximity is a high-growth med-tech company that came public last year with little fanfare
that's a shame because this company is a leader in its industry and has huge growth potential
so what does Doximity do and is it stock worth investing in today here's everything
you need to know about Doximity my name is Brian Feroldi and my name is brian stoffel
thanks to stockcard.io for sponsoring today's video as the time is recording neither brian or
i own shares of Doximity brian Doximity is about a $9 billion dollar business that trades under
the ticker DOCS this company's mission is to help physicians be more productive and provide better
care for their patients while this is a little bit wordy i do think this is a mission-driven
company the company provides a platform that aims to connect those in the healthcare industry
primarily it could be looked at as a linkedin for doctors and physicians but there are other tools
involved that make it similar to docusign slack and even zoom as well the easiest way to think
about this company is it's like the linkedin but specifically for healthcare so docsimity is a
professional networking app that is used by the majority of physicians in the united states and
when those physicians are using the app they have a news feed akin to what you'd see on facebook's
news feed except here the news feed is primarily focused on health news and the company has a suite
of productivity tools that physicians can use including video chat capabilities and even the
ability to sign prescriptions right on the app but how does the business actually make money
especially because doctors are not charged for using or joining this community well they've taken
a three-pronged approach the first is through marketing solutions so life science and healthcare
companies can use the company's platform to market their goods and services to doctors
second is via hiring huge health centers and organizations can use proximity to help recruit
and hire physicians to their staff third is through productivity tools such as telehealth
customers can pay doxemity to have access to those special features now what's truly incredible here
is that the company's net revenue retention rate is a hundred and seventy one percent meaning they
not only hold on to their existing customers but they get them to spend 70 percent more
a year later what's equally impressive is just how little this companies had to spend on sales
and marketing in order to attract new users to its platform the company has become the de facto
standard in the healthcare industry and for that reason it doesn't have to spend huge on sales
and marketing and because people need to go to the doctor no matter the economic conditions we
consider this a recession-proof business more importantly investors should be excited by the
fact that the vast majority of this company's revenue is recurring in nature turning to the
company's moat we think the network effect here is very high why because there are so many u.s
physicians over 80% of them on the platform that anyone who's not is incentivized to join to be a
part of the conversation the same can be said for the top hospital and healthcare systems united
states and the top pharmaceutical manufacturers they want to be advertising to the network where
doctors are highly engaged and as of right now that platform is proximity when it comes to
switching costs we gave a medium rating here while it's true that net revenue retention is above
170% it's important to remember who Doximity's customers are hospital organizations and big
pharma they do have other options when it comes to meeting their marketing and staffing needs
at the same time it's also important to note that the number of those customers paying
the company over a hundred thousand dollars per year is growing rapidly there's also an argument
to me that the company benefits from low-cost production and that it has so many physicians
on his platform sharing information that it gives it access to low-cost data however this is a weak
mode beyond that you could make an argument that the company does benefit from some brand value we
didn't give them credit for that but you add it all together and this is a company that
has an expanding mode around it turning to the company's financials we were very impressed with
what we saw revenue growth has been high and it has compounded at a 78% rate over the last three
years and if you think that was good look at gross margins which are knocking on the door of
90% if that wasn't impressive enough how about the fact that this company is already generating huge
amounts of net income and that in that income is growing extremely rapidly and free cash flow is
growing rapidly as well as the company brought in over $100 million dollars last year the company's
balance sheet is an absolute pristine shape with $142 million dollars in cash and zero debt and
you add all that together and doximity has very high returns on capital right now Doximity was
founded by three co-founders two of which are still with the company today jeff tangy one of
those three co-founders is currently in the chief executive role when it comes to glassdoor ratings
employees seem to really like working on proximity giving the company 4.8 stars out of 5 and jeff
tanga gets 93 approval rating and when you add up the ownership by the co-founders and other
insiders they have a 27 stake in doximdi which is worth over $2 billion today turning to potential
we think that this company has demonstrated that it does have optionality in its bones and that has
already grown three organically growing businesses now one knock against proximity is that it doesn't
have a lot of room to grow operating leverage with such high gross margins and profit margins today
however management believes that its current addressable market opportunity is about $18
billion dollars of which it's only captured about 2% one thing that is worth noting is
that we don't think this company can expand internationally and it is just a u.s story for
now and the vast majority of the company's growth has happened organically so how is proximity done
for investors so far the answer is not great as at the time of this recording this stock is down 12%
that is slightly behind the S&P 500. However in each short life as a public company it has done
very well versus wall street expectations exceeding them every time and right now the
company is not focused on returning capital to shareholders at all although it could be in the
not too distant future given how profitable this business is so what are the risks to watch moving
forward one of the important ones is competition we gave it a medium rating because there are lots
of players that are focused on some aspects of the business for instance linkedin and
staffing solutions or teledoc and the telehealth solutions for proximity but we couldn't find a
player that's trying to do all the things under the same umbrella another risk to watch is there
is some customer concentration issues one customer currently accounts for more than 10 of total sales
but we expect this figure to fall over time as the business continues to grow beyond that despite the
stock not having performed very well this is still a very expensive stock proximity is currently
trading at about 26x sales while this figure is down considerably from its recent high this is
still an elevated number if we look at the price to earnings ratio it's at about 60 same story
here down from its highs but 60 is still a large multiple to be paying we can look at the company's
p e ratio because its earnings are actually real and while it's lower than it was in the past 60
times earnings is still expensive it's the same story with the price to free cash flow ratio
currently trading at about 72 times no matter what multiple figure you look at the company's
stock is currently very expensive although this seems to be a very high quality business so what
should investors be watching moving forward well the first is that net revenue retention and look
we don't expect it to stay above 170 forever but we want to see it maintain healthy growth second
keep an eye on the company's margins the company's gross margin operating margin and net margin are
currently sky high we want to see them remain elevated indefinitely and finally keep an eye
on those free cash flows the company is bringing in a lot of cash right now and we want to see that
figure continue to grow so how did Doximity score on our investing checklist the answer there is
pretty darn well on my quality system it got an 82 so this is a high quality business according to my
framework and on mine it got a 10 which is solidly in the investable area i was being a little bit of
a curmudgeon and didn't give them full credit for the network effect or high switching costs and i
took a point off for concentration all right brian we made our public call so let's hand it over to
stockcard.io to hold ourselves accountable i'm going to start in the anti-fragile portfolio which
is your thumbs up portfolio i'm going to place a new order the ticker symbol here is d-o-c-s for
doximeter we're going to do a buy decision on today's date which is tuesday april 26th this
is a 44 stock so we're gonna be buying 21 shares and it got a score of a 10. then we're going to
head on over to my thumbs up portfolio and we're going to do the exact same thing and while brian
does that we want to remind folks that you can head on over to stockcard.io and view these
portfolios for free at any time you can also enter the beat the brian's contest where you pick five
stocks that you think will do the best between now and the end of the year if you beat us on a
quarterly basis you gain access to vip access to stockcard.io and if you're the overall winner you
get a thousand dollar prize at the end of the year so there you go we think that proximity is a very
high-quality business that more investors should know about what'd you think of this video did you
like it if so give us the thumbs up and let us know in the comment section below brian's out