Could AI Supercharge This Growth Stock?

Companies across industries for years have been studying how artificial intelligence (AI) can make life easier — for themselves and for customers. And in many cases, these companies already have introduced AI into their businesses.

Recently, a high-growth healthcare player mentioned a new tool it’s testing. I’m talking about Doximity (NYSE: DOCS) and its AI writing helper for doctors. Today, more than 80% of U.S. doctors already use Doximity. Could this new AI tool secure Doximity’s leadership in the market — and eventually supercharge the stock? Let’s find out.

Social media and more

First, a bit of background on Doximity. The company offers doctors a platform to connect with each other as they would on social media — but with lots of bells and whistles specifically related to medicine. Doctors can transfer patient files, receive research studies directly related to their field of interest, and conduct virtual visits right from their phone. It’s like an extension of their practice.

How much do doctors pay for all of this? Zero. Doximity generates revenue from pharmaceutical companies and hospital systems. They advertise on the platform in order to reach doctors — for instance, a pharma company aims to tell doctors about its latest medicines.

And since so many doctors — and nurse practitioners, medical students, and physicians’ assistants — use Doximity, pharma companies and hospitals flock to the platform to connect with them. In fact, Doximity’s clients include the 20 top pharma companies and 20 top hospital systems.

As a result, Doximity’s earnings growth has soared. In the most recent quarter, total revenue, operating cash flow, and free cash flow each climbed in the double digits. Adjusted EBITDA also posted big gains in the quarter, rising 18% to more than $55 million. And earnings have been on the rise over time too.

DOCS Revenue (Annual) data by YCharts

AI does the writing

Now, for a look at Doximity’s new AI effort. The company created a beta site called “DocsGPT.” Like the chatbot ChatGPT, it’s all about saving time by letting AI do some writing. Doximity said one doctor raved about DocsGPT after it drafted an appeal letter to an insurer regarding a patient — and within an hour, the insurer approved a more appropriate medication.

Right now, Doximity is calling DocsGPT “a small test project.” But the company hopes it will be just the beginning of its use of AI to make physicians’ jobs easier.

Doximity chief executive officer Jeffrey Tangney mentioned during the most recentearnings callthat there are many ways a DocsGPT product could eventually be monetized. It’s clear such a product could save doctors’ time. As Doximity notes, more than 75% of U.S. healthcare documents are sent by fax or traditional mail. The company eventually could help transform the way these documents change hands — and save doctors’ a lot of time.

So, could progress in AI supercharge Doximity stock? Alone, no. But, along with the company’s strong earnings track record and ability to keep doctors and advertisers coming back, strengths in AI could help lift this stock down the road.

A reasonable price

What does this mean for you as an investor? Right now is a great time to get in Doximity. It trades for 44 times forward earnings estimates, down from more than 75 just a year ago. This is reasonable considering the company’s earnings growth and client list.

Doximity shares took off following the 2021 initial public offering. But they’ve since fallen, disappointing investors and potential investors. That said, this trend is rather short term. Over time, Doximity’s earnings growth, new products — including those based on AI — and gains in members and clients should lead shares of this innovative company higher.

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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Doximity. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.