doximity is a high-growth med-tech company that came public in 2021 with very little fanfare
that's a shame because this company is growing rapidly is highly profitable and has a very bright
future ahead yet this stock is currently down 65% from its 52-week high given that we think right
now is a great time to pick up a few shares my name is Brian Feroldi and my name is brian stoffel
thanks to commonstock for sporting today's video as of the time it's recording neither brian or i
are shareholders of proximity brian after that fall doximity is a $6.5 billion dollar company
doxemity's mission is to help doctors be more productive so they can provide better care for
their patients this is simple inspirational and optional but how does the company do that well
they like to say that they take what's best about linkedin google docusign slack zoom and roll it
all up into one for health care professionals with a professional network much like facebook
a news feed like facebook's and telehealth and other options proximity makes money in three
primary ways the first is with marketing solutions this is providing life science and pharmaceutical
companies with tools to provide marketing messages to doctors the second is through hiring services
that's where u.s hospital systems can use doximity to find people to fill open positions the third is
with a growing telehealth platform where doximity connects providers with each other and providers
to patients so they can easily enable video communications now here's something that's
important think again of doximity like a facebook or linkedin but it has 80 percent of all u.s
physicians and 20 out of 20 of the top hospitals and top pharmaceutical manufacturers as customers
for their marketing solutions docsemi has done a fabulous job about growing its customers and
the company has more than 265 current customers they're going to spend at least a hundred thousand
dollars on the platform and it's also doing a great job of showing those customers that it's
worth spending more on the platform with a net revenue retention rate of 157 percent we classify
doximity as a software as a service company that's primarily driven by marketing and hiring solutions
and as brian just mentioned its dollar-based networking retention rate of 157 percent is
very strong one thing we love about the company is that they're only using about 30 percent of their
gross profit on sales and marketing so customer acquisition costs aren't that high because it's
involved in medicine the customer demand is relatively recession proof and the majority of
that revenue is recurring so does doximeter have a moat we think the answer is yes the first source
of remote is the network effect with more than 80 of all u.s physicians on the platform there is an
impetus for every new physician to join to get access to that growing network the second mode
comes in the form of high switching costs now we know that it's not impossible to change the
platform that you're marketing and advertising on but with a net revenue retention of over a hundred
and fifty percent there are switching costs involved with leaving docsim the third is with
the brand name proximity you can't have eighty percent of all u.s positions on your platform
without having some brand power how strong is it we don't know but we do think it's there and
there are some weak counter positioning aspects as well other marketing and hiring firms would have a
tough time competing with the business model that proximity has created with all of its physicians
on the social platform when taken together and combined with the growing customer count as
well as the number of products and tools that are out there we think this argument that doxemity's
moat is expanding so how's the company performed financially the answer is really well over the
past three years revenue has grown at a 72 clip it has almost 90 percent gross margins on a gaap
basis and net income is positive and growing although it's worth noting that 2022 was held
mightily by a tax benefit at the same time the company is doing a fabulous job at converting that
net income into free cash flow the balance sheet is squeaky clean with nearly 800 million dollars
in cash and zero debt and returns on capital are very high albeit that number is boosted by that
one-time tax payer that brian just noted what about the management team well docsimity was
co-founded by jeff tangy dr nate gross and sherry buck and tangy is still on board as the company's
ceo with gross as the cso employees seem to really like working at proximity giving the company 4.9
stars out of 5 and ceo tangy has a 93 approval rating at the same time insiders own more than 27
of shares outstanding which is worth nearly two billion dollars at current prices so what about
optionality we think it has it in spades proximity has a marketing tool a hiring tool a telehealth
tool and given the recent acquisition of mion it'll have a scheduling tool for u.s hospital
systems one weakness for this company is actually operating leverage it's already
so profitable that we don't see it being able to squeeze out faster profit growth than revenue
growth moving forward that doesn't matter too much because its addressable market opportunity
is large and the company's only captured a tiny fraction and the vast majority of its revenue
growth has been organic in nature so how's the company done since it went public the answer is
not great it's down 36 percent while the overall market is down as well it has however handily
beaten analysts expectations even though the company is profitable and growing it is not
focused on capital return right now although i for one wouldn't mind if this company initiated
a stock buyback program so now let's turn to risk doximity has a lot of competition in various
fields linkedin for instance in terms of hiring teledoc or amway in terms of telehealth but we
give it a medium rating because very few companies have combined all the pieces that doximity has
it's also worth knowing that this company does have a little bit of concentration risks it used
to have a customer that was more than 10 percent of sales that is no longer the case however one
customer is more than 20 of accounts receivable beyond that the company's valuation is the only
other thing that we need to be aware of and we'll get more to that later so how has the
company performed recently the answer there is great in the most recent quarter revenue grew 40
to 94 million dollars that easily exceeded wall street's estimate and management's guidance and
on the bottom line the company reported earnings per share on a non-gaap basis of 21 cents which is
more than double last year's and it beat wall street's estimates the company's margins were
absolutely stellar gross margin came in at almost 90 percent operating margin was 37 and net margin
was higher than operating margin due to that one-time tax benefit now as you can see that tax
benefit made net income shoot up free cash flow was much more modest but still growing and that
balance sheet is stellar guidance for the upcoming coordinate were slightly disappointing management
is expecting 22 revenue growth to 89 million dollars that's slightly behind what was expecting
and the company doesn't provide earnings guidance however wall street expects it to be on par with
where it was last year at 11 cents per share the full year story looks a little better management
actually raised its full-year revenue guidance to 33 or 456 million dollars that was ahead of what
walsh it was expecting and again though management doesn't provide bottom line guidance wall street
is expecting the company to earn 12 cents which is 12 less than last year so what do investors
need to watch moving forward first keep an eye on net revenue retention rate we want to see that the
company is successfully upselling its existing customer base second keep an eye on new products
mion is a new scheduling product but the company needs to roll out more tools to become more deeply
ingrained in a hospital's operating system third keep an eye on those profit margins the company is
already so insanely profitable the only way that they can go is down we want to see them maintain
high margins moving forward and fourth keep an eye on free cash flows we saw that they're still
growing we wouldn't mind seeing them start to grow even faster than revenue overall we believe this
company's milk continues to expand that the thesis for owning this stock is fully on track so how
does doc sammy score on our investing checklists the answer there is fantastic on mine it scored 85
which is in my why don't i own this category and on my framework it scored an 11 which is a bump up
from before because concentration risks are less than they were in the past turning to valuation
we think that doxemity is exiting the hyper growth phase and that's growth moving forward will likely
be more modest but still above average for that reason we believe that management is focused on
both the top and bottom lines so the price to earnings ratio is useful in this case but let's
look at some of the other metrics we have at our disposal on a price to sales ratio doximity
trades for 20 times which is a lot compared to the broader market but it is much lower than it
has been in the past on a price to gross profit basis doxime is currently trading about 22 times
high in absolute terms again more modest when looking at history what about free cash flow
one of my favorite things to look at proximity is trading for about 56 times free cash flow that's
better than before but in no world cheap and it's a similar story on the price to earnings ratio
currently trading about 52 times low compared to recent history high in absolute terms and brian i
know you like to look ahead as well based on the forward p e ratio it's trading at about 50 times
what it's expected to earn this year so there you have it we believe that doxemity is a very high
quality business that's trading at attractive valuations so we're going to be adding 250
of it to our portfolio today now if you want to follow our portfolio head on over to common stock
where we have it listed for everyone to see also see our listing about why we're buying doximity
and make a comment below every week we pick the most insightful comment and common stock pays 250
to that person want to give a shout out to modern growth investing for providing the most insightful
comment on a recent decision to purchase semrush commonstock provided modern growth investing with
a 250 cash payment so if you want to get hands on that cash payment head on over to common stock and
provide a comment on our slides we hope that you found this video to be useful and i for wanting to
look forward to becoming a doximity shareholder in the not too distant future brian's out