Read us and find out if is still a good idea to buy GoodRx shares
GoodRx Holdings, Inc. is a health care technology company which provides information and tools that enable consumers to compare prescription drug prices in the U.S.
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The Business
We anticipate 2021 sales will grow 36% to $750 million, then 38% growth in 2022, following 42% growth in 2020. We see 2021 revenue growth driven by rapid growth of offerings like subscriptions, manufacturer solutions, and other new initiatives. Revenue for the second quarter accelerated 43% to $177 million (vs. 31% growth for the trailing 12 months through Q1), even with headwinds from Covid-19 and a weak flu season. Demand for GDRX’s telehealth offerings has picked up significantly during the pandemic as well. We forecast a 28.8% operating margin in 2021 and 29.3% in 2022, following two straight years of operating losses. We expect margin expansion driven by growth investments in GDRX’s platform and brand beginning to pay off, repeat activity on GDRX’s platform (which remained at over 80% in Q1), consumer growth across GDRX’s offerings, and increased scale of GDRX’s subscription, manufacturer solutions, and telehealth offerings. We estimate GDRX will generate $218 million of free cash flow in 2021, followed by $277 million in 2022, compared with $106 million in 2020. We expect cash from operations to grow faster than capex.
Key elements of GDRX’s growth strategy include: attracting new consumers by growing awareness of existing offerings and through the extension of its platform into many of the other areas of health care which lack price transparency
Investment Case
We believe shares of GDRX are fairly valued currently. We think GDRX’s technology-driven prescription business model is interesting and forecasted operating metrics, such as a projected return on invested capital of 24% in 2021, are strong. GDRX found a niche area of the U.S. prescription market, by publicizing ‘usual and customary’ cash costs for consumers without insurance, and obtaining a cut for routing the business to pharmacies. GDRX’s expansion into the telehealth space following its acquisition of HeyDoctor (now rebranded to GoodRx Care) in April 2019 was well-timed. We see telehealth as a large growth area within health care, though note there is ample competition from more established competitors. Downside risks to our target price and recommendation include unfavorable changes to PBM relationships, including loss of business or mergers, or increased competition in the technology-driven prescription business from other companies like Amazon.
Our 12-month target price of $42 reflects an EV/Sales multiple of 15.9x our FY 22 Sales estimate.
Our risk assessment is HIGH. Reflects GDRX’s limited operating history and reliance on retaining pharmacy benefit manager partnerships, as well as recognition that GDRX is not yet earning a profit.
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+This strategy accumulates a profitability greater than 80.00% measured in US Dollars in 2020.
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