Is GoodRx Stock A Buy?

Is GoodRx Stock A Buy? Telemedicine’s rising popularity has been spurred by the global pandemic. Talk about a sizzling investment space! For instance, consider Teladoc (TDOC) – the company’s stock has skyrocketed by almost 170% in 2020.

While patients and their physicians adapt to a virtual world of interactions, the healthcare industry is desperately seeking new the best technology providers.

GoodRx (GDRX) presented its IPO in September 2020. Upon announcement, the stock was on fire, rising 53% on the first day alone. But now, what appeared to be dust settling is proverbial ashes. The hype’s gone – and so, potentially, are the reasons to buy GoodRx.

Is GoodRx a good investment? If you’re considering adding this to your stock portfolio, let’s examine this healthcare stock a little closer.

GoodRx Saves 17 Million Monthly Users Billions

GoodRx operates both a platform for telemedicine and a free web and mobile application. The company’s app tracks the costs of prescription drugs at over 70,000 pharmacies and offers its members coupons for medication discounts.

This company has built a loyal customer base since its 2011 founding. It has over 17 million monthly users who’ve saved a combined $5 billion in medication costs – and that was just in the past year alone.

GoodRx stepped into pole position, outing an industry in which prices aren’t regulated. Prescription drug costs can vary between pharmacies by as much as $100 in the same city.

Insurance doesn’t cover prescription costs like it did just a decade ago. When the founders of GoodRx, Doug Hirsch and Trevor Bezdek, realized insurance companies were passing up to 80% of drug costs onto the patient, they saw an opportunity to intervene.

Because of such exorbitant prescription pricing, people jumped on the GoodRx bandwagon in droves. But, given the company’s business model – issuing coupons for other companies’ products – how does this company make money?

And because of the fierce competition in the healthcare sector, what should you know before you make an investment decision?

Is GoodRx Stock A Buy?

Business may appear to be good for GoodRx with so many customers, but what do its financials look like?

For such a newly public company, the positive news is that earnings are positive. You can’t say the same thing about Teladoc (TDOC) and some other high profile names.

Analysts have targeted a fair market value of $33 per share as the GDRX intrinsic value.

Nevertheless, GDRX price-to-earnings ratio is in the ballpark of 225 – over 10 times that of the average stock share in the SPDR’s Health Care Select Sector Fund – and you’re looking at a company’s stock trading at over 40 times its revenue. That could be a glass house on the verge of shattering.

That said, that $66 million in profit from 2019 was almost 51% higher than the company’s net income for 2018. By the end of Q2 2020, GoodRx had already netted nearly $55 million and just over a 21% profit margin.

So, sales are growing. This is a good thing. Most newly issued IPOs haven’t made the turn into profitability by this point. If GoodRx maintains these kinds of profit margins, it’s definitely a stock to watch.

Risks Of Buying GoodRx Stock

When GoodRx debuted publicly in September 2020, the company raised over $1 billion, and the share price soared by over 50% in its first day trading. Just a couple months later and the stock’s plummeted to near-IPO price levels.

While company premise remains strong, there are simply other, more well-established companies that could potentially knock the legs out from under GoodRx.

Companies with deeper access to financing and more resources are poised to pose stealthy competition for GoodRx. Amazon (AMZN) and Walmart (WMT) are two such competitors, surprisingly.

Amazon Pharmacy, having acquired PillPack back in 2018, is perhaps GoodRx’s strongest competition. With proper documentation, Amazon Pharmacy fills patient prescriptions and delivers to patient doorsteps.

Walmart entered the arena in September 2020 with the announcement that it would be expanding healthcare services to more locations in the United States. Walmart (WMT) offers low-fee healthcare services in five Georgia-based stores and one in Arkansas.

Services such as primary care physicians, eye care, and dental will soon be offered in Chicago, Illinois, and Jacksonville, Florida. More stores in Georgia will offer the services by the end of 2021, and Walmart is researching other Florida markets.

Is GoodRx Vs AMZN Like David Vs Goliath?

Yes, this is a very real possibility. Walmart and Amazon are household names and could, because of their abilities to offer deeper discounts, undercut anything GoodRx has to offer.

If these companies chip away GoodRx’s foundation and steal a larger share of the market, it could spell disaster for GoodRx.

GoodRx may become a victim of its own success. After all, as AMZN and WMT spotted the market opportunity that GDRX has forged, the competition stiffened for the industry pioneer.

Another merger in the healthcare sector, that of Teladoc with Livongo Health, created an industry monster posing significant competition – Teladoc is the reigning King of Telemedicine.

GoodRx only launched its telemedical services in March 2020. From March through the end of June 2020, their site had a million visits which garnered them more than 200,000 actual telemedical medical “office” visits and/or testing procedures completed. From January through June of 2020, Teledoc had nearly 3 million telemedical office visits.

In its favor, GoodRx had its own acquisition in 2019. They took over the reins for telemedicine company HeyDoctor. But as a relatively new startup, HeyDoctor will take time to grow.

Is GoodRx Stock a Buy? The Bottom Line

There is much to like when it comes to GoodRx – we’re in the midst of a pandemic, and healthcare stocks that save consumers money are an obvious watchlist addition.

An issue with GoodRx, however, is its lofty valuation. The company’s valuation is lofty, and GoodRx’s stock price may fall even further due to heightened competition from behemoths; Amazon and Walmart.

If you really want to own a piece of GoodRx, it might behoove you to hold out for now and revisit this decision six months to a year from now. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.