Wait for GoodRx Stock to Fall Below $35

The public debut of the digital health care platform GoodRx (NASDAQ:GDRX) on Sept. 23 initially made the headlines. GDRX stock, which opened at $46, hit a record high of $64.22 on Sept. 29.

Source: II.studio / Shutterstock.com

However, November has not been a kind month as the shares fell to a low of $33.51. Now, they are near $38.

GoodRx was founded in 2011 “as a way to help consumers compare prices for prescription drugs at pharmacies, taking advantage of little-known price variations.” Over the past decade, the company has grown significantly to reach the IPO stage, thanks in part, due to growing amounts spent on prescription drugs stateside.

Recent research led by Eric M. Tichy at the Mayo Clinic points out that U.S. pharmaceutical expenditures grew by 5.4% in 2019 to nearly $508 billion. For 2020, prescription drug spending is expected to rise by 4% to 6%.

Now, the question for GoodRx stock is whether it can become a long-lasting success, or is it just a flash in the pan? The company is still in the early stages of its journey. If you are not yet a shareholder, you may consider starting a position around $33, a level where the company would offer better value. Here’s why.

Health Care Needs Are Growing

For millions of Americans and billions worldwide, 2020 has meant growing health care concerns due to the novel coronavirus. The potential risk of Covid-19 contamination has increased the demand for virtual health care visits during the pandemic, and economic uncertainties have pushed patients to seek better prices for prescribed medication.

The adoption of telemedicine has shifted into hyperdrive since March. According to metrics from Forrester, virtual care visits will soar to more than 1 billion this year, including 900 million visits related to Covid-19.

The GoodRx platform connects consumers with affordable and convenient prescriptions and medical care, including telehealth, mail-order prescriptions, doctor visits and lab tests. Millions use its app to determine the best prices for their prescription drugs. Additionally in 2019, GoodRx acquired telehealth provider HeyDoctor for $14.3 million, and the company launched its own telehealth marketplace.

The World Health Organization (WHO) recommends “using virtual health care delivery to evaluate suspected cases of Covid-19. … The virtual health care delivery market size at $21 billion worldwide in 2019 and is projected to reach $95 billion worldwide and $77.4 billion in the U.S. by 2026.”

Therefore, shareholders in a company like GoodRx, could be quite optimistic in terms of growth in revenue as well as platform use.

GoodRx Stock Earnings

On Nov. 12, GoodRx released third-quarter results. Total revenue was $140.5 million, an increase of 38% from last year. Investors noted the 29% increase in the monthly active consumers, which now stands at 4.9 million.

Adjusted net income was $35.6 million and increased 53% year-over-year. However, the GAAP net loss was $50 million. A year ago, the company registered GAAP net income of $19.6 million, a decline of 355%.

Despite the upbeat tone of the quarterly metrics, following the results, investors decided to hit the “sell” button in GoodRx stock. The decline in share prices increased when on Nov. 17, Amazon (NASDAQ:AMZN) announced Amazon Pharmacy, which will allow U.S.-based customers to order prescription medications for home delivery.

In a matter of days, GoodRx stock lost more than 20% of its value. The announcement also spooked investors in traditional pharmacy giants, CVS Health (NYSE:CVS), Walgreens Boots Alliance (NASDAQ:WBA) and Rite Aid (NYSE:RAD).

Despite the recent decline in GoodRx stock price, the company’s forward price-earnings, price-book and price-sales ratios stand at 111.11, 20.12 and 29.74, respectively. These numbers possibly mean that it was a high-priced IPO and GDRX shares are relatively overvalued.

GoodRx operates in a high-growth sector. However, it does not yet have much trading history. Therefore, it would be important for long-term investors to analyze fundamental metrics and quarterly reports for several quarters. Put another way, GoodRx still has a lot to prove as a public company.

Should You Buy GDRX Stock Now?

If you are not yet a shareholder, you may wait several more weeks to buy into the shares. A potential drop toward $35 or even to $33 would improve the margin of safety for long-term investors. In a few years, the GDRX stock is likely to benefit from its  telemedicine operations and also from helping Americans save on prescription drugs. Meanwhile, the company could also find itself a takeover candidate.

For those investors who prefer not to commit all their capital to a single stock, an exchange-traded fund (ETF) that focuses on health care could be more appropriate. Examples would include the Global X Telemedicine & Digital Health ETF (NASDAQ:EDOC) or the iShares U.S. Healthcare Providers ETF (NYSEARCA:IHF).

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil Ph.D. has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination.