Doximity has been treading water for the past six months, holding steady at $58. However, the stock is beating the S&P 500’s 6.2% decline during that period.

Is DOCS a buy right now? Or is this an overvalued company? Find out in our full research report, it’s free.

Why Are We Positive On Doximity?

Founded in 2010 and named for a combination of “docs” and “proximity”, Doximity (NYSE: DOCS) is the leading social network for U.S. medical professionals.

1. Billings Surge, Boosting Cash On Hand

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Doximity’s billings punched in at $144 million in Q4, and over the last four quarters, its year-on-year growth averaged 20.3%. This performance was impressive, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth.

2. Customer Acquisition Costs Are Recovered in Record Time

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

Doximity is extremely efficient at acquiring new customers, and its CAC payback period checked in at 5.3 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Doximity more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.

3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Doximity has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the software sector, averaging an eye-popping 42.2% over the last year.

Final Judgment

These are just a few reasons why we think Doximity is a great business, and with its recent outperformance in a weaker market environment, the stock trades at 19.1× forward price-to-sales (or $58 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.

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