On Thursday, Morgan Stanley (NYSE:MS) adjusted its stance on Doximity Inc (NYSE:NYSE:DOCS), elevating the stock from Underweight to Equalweight. Accompanying this upgrade was a significant increase in the price target, now set at $53.00, a jump from the previous target of $33.00. The revision reflects a reassessment of the company's valuation and growth prospects.
The analyst from Morgan Stanley noted that Doximity's valuation appears stretched when measured against its fundamentals, citing an enterprise value to sales (EV/S) multiple of 16 times and an EV/EBITDA multiple of 31 times based on calendar year 2025 estimates.
Despite these high valuation metrics, the analyst pointed out that Doximity's growth, adjusted for the EV/S, is at the upper end of the software sector.
Doximity's current valuation stands out in the market, with an enterprise value to sales to growth (EV/S/G) multiple of 1.7 times, which is significantly higher than the median for the software industry. This positions the company in what the analyst describes as "rarified air."
The analyst also highlighted the conservative nature of Doximity's guidance, with a projected year-over-year revenue growth of only 3% for the fourth quarter of fiscal year 2025. This conservative outlook, however, does not seem to dampen the positive sentiment surrounding the stock, as there is no immediate catalyst expected to alter this trend.
Looking forward, the analyst raised questions about the potential for Doximity to outperform its fourth-quarter estimates and the growth trajectory for fiscal year 2026. While Morgan Stanley's estimates suggest an 8% year-over-year growth, the consensus among other analysts is slightly more optimistic at 10%.
In other recent news, Doximity Inc. showcased robust second-quarter results for fiscal 2025, with a year-over-year revenue increase of 20% to $137 million, surpassing expectations.
The company also reported a record adjusted EBITDA margin of 56%, translating to $76 million, indicating a 41% increase from the previous year. User engagement metrics also saw growth, with over 600,000 active prescribers and more than 1 million Doximity GPT prompts in Q2.
In the wake of these strong results, Canaccord Genuity adjusted its stance on Doximity, downgrading the stock from Buy to Hold while raising the price target to $60 from $40. Despite Doximity's impressive performance, the analyst suggested that market expectations of robust growth rates are now factored into the stock's valuation.
These recent developments include the introduction of a new client portal, now used by over 40% of pharma clients, with full rollout expected in early 2025. For the third quarter, Doximity projects revenue to be between $152 million and $153 million, with adjusted EBITDA estimated at $83 million to $84 million.
The company has also raised its full-year revenue guidance to between $535 million and $540 million, despite anticipating Q4 revenue challenges and increased operational expenses.
InvestingPro Insights
Doximity's recent performance and financial metrics provide additional context to Morgan Stanley's upgrade. According to InvestingPro data, Doximity has shown impressive growth with a 124.84% price total return over the past six months and a 108.11% return over the last year. This strong performance aligns with the analyst's positive revision of the stock's outlook.
The company's financials reflect robust profitability, with a gross profit margin of 89.94% for the last twelve months as of Q1 2023. This exceptional margin supports the analyst's view on Doximity's strong fundamentals. Additionally, an InvestingPro Tip highlights that Doximity operates with a moderate level of debt, which could contribute to its financial stability and growth potential.
Another InvestingPro Tip notes that 12 analysts have revised their earnings upwards for the upcoming period, suggesting a broader positive sentiment beyond Morgan Stanley's upgrade. This collective optimism from analysts could be a factor in the stock's current valuation.
For investors seeking more comprehensive analysis, InvestingPro offers 18 additional tips for Doximity, providing a deeper understanding of the company's financial health and market position.
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