GoodRx’s stock price has taken a beating over the past six months, shedding 40.7% of its value and falling to $2.31 per share. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is now the time to buy GoodRx, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think GoodRx Will Underperform?
Even with the cheaper entry price, we don't have much confidence in GoodRx. Here are three reasons why GDRX doesn't excite us and a stock we'd rather own.
1. Lackluster Revenue Growth
Long-term growth is the most important, but within healthcare, a stretched historical view may miss new innovations or demand cycles. GoodRx’s recent performance shows its demand has slowed as its annualized revenue growth of 2.4% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs. 
2. Fewer Distribution Channels Limit its Ceiling
Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.
With just $796.9 million in revenue over the past 12 months, GoodRx is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.
3. Previous Growth Initiatives Have Lost Money
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
GoodRx’s five-year average ROIC was negative 1.9%, meaning management lost money while trying to expand the business. Investors are likely hoping for a change soon.
Final Judgment
We cheer for all companies helping people live better, but in the case of GoodRx, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 6.9× forward P/E (or $2.31 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. We’d suggest looking at the Amazon and PayPal of Latin America.
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