Actions of BonRX (GDRX 7.45%) rose 7.5% today as the prescription drug price comparison site and telehealth platform earned a positive upgrade from analysts at Wells Fargo. Monday’s performance confirms the stock’s solid performance since the start of the year. But is a real recovery for the struggling health technology sector really beginning?
Going “overweight” and planning more beats and raises
In today’s note, Wells Fargo’s analyst team raised their rating on GoodRX from “equal weight” to “overweight,” while increasing their price target from $7.50 to $10. This compares to a stock price of $6.58 to start the day.
According to analysts, this positive change of heart is due to the company’s greater appreciation of the sustainability and visibility of GoodRx’s revenue this year, stating:
We believe this allows GoodRx to deliver a beat & raise story in 2024 with upside to consensus expectations in 2025… We expect this momentum to help GDRX close the valuation gap versus its peers , thus allowing the stock to see significant results. outperformance over the next 12 months.
It’s unclear what caused Wells Fargo’s change in sentiment today, but GoodRx beat revenue and adjustment expectations (non-GAAP) earnings per share in its fourth-quarter earnings report on February 29.
GoodRx managed to grow its revenue by about 7% last quarter, but its core underlying transaction business did a little better than those numbers suggest. Although the company saw a decline in subscription revenue, primarily due to the discontinuation of a program with Kroger (NYSE:KR), its transaction-based business saw 11% transaction growth, in addition to 8% growth in monthly active customers. Additionally, its Gold subscription business outside of the Kroger program has also increased.
Additionally, GoodRx achieved this growth while reducing costs thanks to its restructuring plan introduced last August, which aimed to deprioritize certain programs.
Overall, this rating appears to be a late update following an otherwise good earnings report a month ago. After today’s rise, GoodRx is up 7.2% for the year, but up about 28% from its decline in early January.
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 IPOs (IPOs) and special purpose acquisition companies (SPACs), as interest rates quickly normalized upward and growth slowed. However, after its crash from 2021 to 2022, the stock was based around these levels for almost two years.
Could this be the start of a new step upwards? Now, with more realistic expectations built into the stock price, GoodRx is worth considering as a turnaround story going forward. The company has an honorable mission to lower prescription drug prices, and CEO Scott Wagner, who replaced GoodRx’s founders as interim CEO in April 2023, just extended his commitment to the company, so that its recovery seems to be gaining momentum.
Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Billy Duberstein has no position in any of the stocks mentioned. Its clients may hold shares of the companies mentioned. The Motley Fool reviews and recommends GoodRx. The Motley Fool recommends Kroger. The Motley Fool has a disclosure policy.