Why Doximity shares have fallen more than 11% this week

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What happened

Shares of a healthcare software company Doximity (DOCS 5.46%) fell 11.5% last week. It capped off an atrocious first half of 2022, the worst first half in over half a century. Until July 1, the S&P500 was down 19.7%, the Nasdaq Compound was down 25.9% and Doximtiy took a 26.8% hit.

So what

There was no specific news from Doximity to cause the decline last week. However, growth stocks in general continue to struggle after the US Federal Reserve raised its short-term interest rate by 0.75% in June. As a reminder, the present value of risky assets like stocks falls if interest rates rise.

Inflation is still hot right now, and the Fed is expected to raise interest rates again at its July 26-27 meeting. Thus, high growth stocks like Doximity which have high variability in earnings generation have remained much more volatile than stocks in the broader market.

Now what

The good news is that Doximity is as cheap as it has ever been since becoming a publicly traded stock just over a year ago. Not only are stocks only a few percentage points above their low point, but business is also growing rapidly. Management expects fiscal 2022 revenue to grow approximately 33% year-over-year.

Even better, while high-growth companies like Doximity show highly variable profitability early in their development, this healthcare software company has already achieved some great things. The free cash flow profit margin was 35% last year, and Doximity said it expects to generate an adjusted EBITDA margin of around 42% next year. The stock trades for a 58x premium to free cash flow, but it could be a great long-term deal if you plan to hold onto it for many years – and if Doximity continues to carve out a place for itself in the sector. of health.

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