Shares of GoodRX (GDRX 2.21%) rallied 7.5% today, as the prescription drug price-comparison site and telehealth platform garnered a positive upgrade from analysts at Wells Fargo. Monday's performance continued the stock's strong performance since the beginning of the year. But is a true recovery for the beaten-down health-tech stock really beginning?
Upgrading to "overweight" and forecasting more beats and raises
In its note today, the Wells Fargo analyst team raised its rating on GoodRX from "equal weight" to "overweight," while raising its price target from $7.50 to $10. This compares with a $6.58 share price to begin the day.
According to the analysts, the positive change of heart is due to the firm's greater appreciation of GoodRx's staying power and revenue visibility this year, saying:
We think this sets up GoodRx to deliver on a beat & raise narrative in 2024 with upside to consensus expectations in 2025... We expect this dynamic to help GDRX close the valuation gap to its peers, in turn setting up the stock to see meaningful outperformance over the next 12 months."
It's a bit unclear what brought on Wells Fargo's change of opinion today, but GoodRx did beat expectations for both revenue and adjusted (non-GAAP) earnings per share in its fourth-quarter earnings report on Feb. 29.
GoodRx managed to grow revenue about 7% last quarter, but its main underlying transaction business did a bit better than those numbers suggest. Although the company saw a decline in subscription revenue, mainly from the cessation of one program with Kroger (NYSE: KR), its transaction-based business saw 11% transaction growth on top of an 8% growth in monthly active customers. Moreover, its Gold subscription business outside of the Kroger program actually also grew.
Furthermore, GoodRx achieved this growth even while trimming costs as a result of its Restructuring Plan instituted last August, which focused on de-prioritizing certain programs.
All in all, this note appears to be a belated upgrade following an otherwise good earnings report one month ago. After today's rise, GoodRx is up 7.2% on the year but up about 28% from its early January dip.
Should you buy this turnaround story?
GoodRx is emblematic of the pandemic-to-post-pandemic bear market in growth stocks. After going public in September 2020 at $33 per share, when interest rates were at rock-bottom, GoodRx suffered along with many pandemic-era initial public offerings (IPOs) and special-purpose acquisition companies (SPACs) as interest rates rapidly normalized higher and growth slowed. Yet after its 2021 to 2022 crash, the stock has based for nearly two years around these levels.
Could this be the beginning of a new leg higher? Now with more realistic expectations embedded in the stock price, GoodRx is worth looking at as a turnaround story going forward. The company has an honorable mission of lowering prices for prescription drugs, and CEO Scott Wagner, who replaced GoodRx's founders as interim CEO in April 2023, has just extended his commitment to the company, as his turnaround appears to be gaining traction.
