Incorporated in 2015, GoodRx Holdings Inc. (GDRX) has emerged as a major disrupter in the prescription marketplace. The company made its stock market debut on September 23. The stock has gained 26.9% year-to-date. The price gain since its debut has been driven primarily by the COVID-19 pandemic, which has significantly increased the company’s telehealth offerings, including demand for its HeyDoctor product and utilization of its GoodRx Telehealth Marketplace.

The company has been making significant investments in consumer acquisition and expects to continue to spend significant amounts to acquire additional customers. However, if the company fails to deliver reliable and significant discounted prices for prescription medications, it might lose consumers and would be unable to maintain the scale necessary for operational efficiency.

Its stock hit its all-time high of $64.22 on September 29 but has since declined 20.8%.  While GRDX operates in a favorable business environment, it is currently battling a lawsuit, which is causing some uncertainty regarding the company’s prospects.

We believe the following factors might have an impact on the stock in the near term:

Favorable Business Environment

Healthcare consumers in the U.S.  face several  challenges. These include a lack of affordability, transparency, and access to care. In addition,  healthcare professionals’ lack of access to current prescription pricing and out of pocket consumer cost information exacerbates those consumer challenges.

GDRX’s business platform is attempting to address these challenges. The company’s offerings provide significant savings to consumers, and can help drive greater medication adherence, faster treatment and better patient outcomes that also benefit the broader healthcare ecosystem and its stakeholders.

Legal Risk

A class action lawsuit has been filed against GDRX by various law firms in the past couple of months. The plaintiffs allege that GDRX  made misleading statements about its competitive position at the time of the IPO. Amazon.com, Inc. (AMZN) has been developing and will soon introduce its own online and mobile prescription medication ordering and fulfillment service that would compete directly with GDRX. However, this was unknown to the investors at the time of IPO. GDRX faces allegations that it timed its IPO in such a way that it was priced before Amazon announced its online pharmaceutical business to facilitate the IPO and create artificial demand for the shares of the company. This has caused  instability and disruption in the normal functioning of the business, which was already affected due to the spread of the pandemic.

Mixed Third-Quarter Results

GDRX’s revenues have increased 38% year-over-year to $140.45 million in the third quarter ended September 30, 2020. However, the company has reported an operating loss of $61.69 million and a net loss of $50.03 million. Its loss per share was  $0.21.

Insufficient Growth Momentum

Analyst expects GDRX’s revenues to rise 35.3% year-over-year to $737.36 million in the current fiscal ending December 31, 2021. However, a consensus EPS estimate of $0.34 for the current year represents a marginal decline from the year-ago value.

Unfavorable Analyst Sentiment

Analysts expect GDRX to hit $48.93 soon, representing  downside potential of 2.1%. Moreover, of 14 Wall Street analysts that rated the stock, only three  rated it “Strong Buy”.

POWR Ratings Indicate Mixed Prospects

GDRX has an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system evaluates each stock on eight different categories. GDRX has a grade of B for Momentum, justifying its 27% price gains over the past month. It also has a Quality Grade of B. However, the company has a grade of D for Stability because of increased volatility and the legal risk. In the 239-stock Medical - Pharmaceuticals Industry, it is ranked #130.

Check GDRX’s POWR Ratings for Sentiment, Growth, and Value by clicking here.

Better than GDRX: Click here to learn about top rated restaurant stocks.

Bottom Line

Despite the stock exhibiting strong momentum over the past couple of months, GDRX’s growth potential looks bleak on several grounds. So, it may not be wise to bet on the stocks now.

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GDRX shares were unchanged in after-hours trading Wednesday. Year-to-date, GDRX has gained 27.66%, versus a 2.13% rise in the benchmark S&P 500 index during the same period.

Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands.

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