Healthcare networking platform Doximity (document -4.72%) We will go public in the second half of 2021. The stock nearly doubled in just a few months, but has since cooled in this bear market. The stock is down 68% from its highs and is recovering its rapid post-IPO gains. Are stocks destined for a rebound, or was it just another bad investment that propped up a euphoric Wall Street in 2021?
Doximity enables medical professionals to network, develop themselves, communicate with patients, and provide clarity in a notoriously complex industry. However, there are some question marks about the long-term investment potential of stocks. Please consider these important observations before deciding whether Doximity is included in your portfolio.
Unlock customer growth
Doximity calls itself “a digital platform for physicians.” Participation for doctors is free. Doximity generates revenue from subscriptions that it bills to pharmaceutical and healthcare system companies. This subscription pays for access to your user base for advertising and hiring.
Being highly specialized can be a double-edged sword. On the one hand, Doximity has traction in its target market. The company estimates that 80% of US doctors use his Doximity.
On the other hand, however, growth may be hampered if the target market becomes saturated. Doximity went public with about 600 subscription customers, most of whom pay for marketing services. Below you can see just how much revenue growth has slowed since Doximity went live. Not surprisingly, revenue growth slows when ad partners start maxing out their platform spend.

DOCS Revenue (Quarterly YoY Growth) Data from YCharts
Doximity claims to serve all of the top 20 pharmaceutical companies and hospitals in the US. This highlights the value the platform creates, but the company needs to monetize its customers and network members in new ways. Otherwise, revenue growth may continue to stagnate. Analysts seem to think Doximity’s growth is stalling. Estimates see his earnings per share (EPS) growth averaging 4% over the next three to five years.
Trading at Growth Stock Valuations
The stock’s most significant problem is that investor expectations do not match the potential reality of Doximity’s forward-looking performance. The stock is trading at a futures price/earnings ratio (P/E) of 48, which is nearly triple that of the United States. S&P 500, growing at an average of nearly 10% over its lifetime. If the 4% earnings growth forecast proves accurate, Doximity is hardly a growth stock, and we would expect the stock to fall as a result.

DOCS PE ratio (forward) data by YCharts
The current gap between Doximity’s valuation and expected growth (or lack thereof) should cause investors to pause before buying the stock. This would change if Doximity could show an uptrend in new revenue streams, but I’ve always argued that investors should be especially cautious in a bear market when stocks are generally down. But until then, Doximity is too high to justify putting new money into equities.
Justin Pope has no positions in any of the stocks mentioned.The Motley Fool has positions in and recommends Doximity. The Motley Fool’s U.S. headquarters has a disclosure policy.