Over the past six months, GoodRx’s stock price fell to $3.94. Shareholders have lost 9.8% of their capital, which is disappointing considering the S&P 500 has climbed by 30.6%. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy GoodRx, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.
Why Do We Think GoodRx Will Underperform?
Even though the stock has become cheaper, we're swiping left on GoodRx for now. Here are three reasons we avoid GDRX and a stock we'd rather own.
1. Weak Customer Growth Points to Soft Demand
Revenue growth can be broken down into the number of customers and the average spend per customer. Both are important because an increasing customer base leads to more upselling opportunities while the revenue per customer shows how successful a company was in executing its upselling strategy.
GoodRx’s total customers came in at 5.7 million in the latest quarter, and over the last two years, their count averaged 2.9% year-on-year growth. This performance slightly lagged the sector and suggests that increasing competition is causing challenges in landing new contracts. 
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 $799.9 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? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
GoodRx’s five-year average ROIC was negative 19.4%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.
Final Judgment
We see the value of companies making people healthier, but in the case of GoodRx, we’re out. After the recent drawdown, the stock trades at 9.6× forward P/E (or $3.94 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.
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