GoodRx (GDRX) is a misunderstood company that presents a great risk-to-reward opportunity for 2022, explains technical expert Matthew Timpane, editor at Schaeffer's Investment Research.
Since its initial public offering (IPO), the company has been expanding its platform from being a discount prescription provider to providing a well-rounded digital healthcare platform.
GoodRx has largely been punished for this expansion, as capital expenditures increased +105.8% this past quarter, which ate into the earnings as it saw a decrease from 17.6% to -9.3% in net profit margins. I don’t see this as a bad thing, however, as they are expanding their total addressable market by this move.
On top of that, maybe investors forget that most of GoodRx’s current top-line growth is converted into gross margins, which is currently around 94%. In other words, they are using their cash flow to expand strategically.
With this expansion, we’re also seeing growth in GoodRx’s premium Gold service, with subscriber growth at 68% year-over-year (YoY) to $1.13 million and revenue from this segment growing at a clip of 111% YoY. Premium services should continue to drive growth as the platform expands, as it already provides additional discounts on medications and the ability to ship the subscription to your home.
From a technical perspective, GoodRx stock is below all major moving averages, which is something I typically don’t want to see. However, it is set up in a weekly falling wedge pattern and trying to bounce at its IPO price level.
Additionally, the half-high mark, which is currently around $30, is just below. The half-high level also resides at the big earnings beat date from August 2020 where price surged, so it could be formidable support. Regarding sentiment, short-interest is at an outstanding 21.01% of its outstanding float, which makes it ripe for a massive, short-covering rally in 2022.
Analysts also remain mixed on the stock with four sporting a "strong buy," eight a "buy," five a "hold," and one a "sell," with a consensus 12-month price target of $45.59. This gives us plenty of room for upgrades in 2022.
While I may hold off on buying options right here until I receive a signal to get aggressive, the equity’s Schaeffer’s Volatility Index (SVI) of 56% ranks in the 10th percentile of its range, meaning options have not priced lower 90% of the time over the past year.
Couple that with our Schaeffer’s Volatility Scorecard (SVS) reading of 82 (out of 100), which tells us if we do get a signal to get aggressive, we have a high likely hood of outperforming the expected implied move in the stock price.
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A Look Back at 2021's Top Performers
Matthew Timpane selected two big winners as his Top Picks last year; her he reviews those recommendations:
Software stock Datadog (DDOG) came in with an 80% return on the year. I originally DDOG's 20-week moving average and short squeeze potential. But what really drove the shares was the shift among the brokerage bunch. Last January, 10 of 18 brokerages held a tepid "hold" stance.
Now, only four rate DDOG a "hold" or "strong sell." Looking at the stock's chart, you can see notable post-earnings bull gaps of 8.3%, 15.3%, and 11.1% following the last three earnings reports that triggered the analyst adjustments. Yet a t the same time, short interest is on the rise again, and a healthy 5% of DDOG's total available float is sold short.
Medical device maker Fulgent Genetics (FLGT) started 2021 trading at $54.28 and ended at $100.59 good for a 93% year-to-date gain because of a revenue boost wrought from the company's NGS (Next-Generation Sequencing) surveillance.
This technology is used to track coronavirus mutations that are integral to vaccine management. It's sobering to say that such technology is still prevalent — and perhaps more dire — a year after the original pick. The stock nestled into triple-digit territory to start December after Fulgent confirmed the omicron variant was detectable with their RT-PCR test.
