OPRX - OptimizeRx Has A Good Growth Path Ahead

2023-04-03 17:16:43 ET

Summary

• OptimizeRx Corporation is an interesting company with an investment thesis based on its ability to capture a large TAM, with customers being some of the largest pharma companies out there.
• The company's financial position is robust and they have been able to grow its top line at a notable and impressive rate recently.
• Down heavily from a year ago, the current share price seems to offer more reward than risk for a long-term position.

Investment Thesis

When the market takes a dip, it can sometimes present an opportunity to invest in discounted stocks that could lead to profitable returns. One such company is OptimizeRx (OPRX), which has seen a significant 61% decrease in its stock price over the past year. But don't let that fool you - OptimizeRx has been performing quite impressively, with strong growth and profitability metrics. Despite the high p/e, the company is quickly growing in its valuation.

The company has a large and expanding Total Addressable Market, with industry tailwinds supporting the demand for its solutions. Its scalable operating model has ample network capacity to facilitate further growth, and a strong customer base that gives it a competitive advantage over other players in the industry. This customer base is a testament to the company's execution ability and competitive moat. Given that bigger companies in the sector are diverting more capital to commercial spending, this presents a big opportunity for OptimizeRx that I think they will be able to capitalize on very successfully.

On top of all that, OptimizeRx boasts a solid balance sheet, and rapid revenue growth QoQ, and has the potential for a significant increase in profitability in the near future. Despite recent market challenges, I think there are plenty of reasons to believe that OptimizeRx has a promising future ahead, and starting a position right now is not such a bad idea.

Large Market Opportunity

OptimizeRx is doing an impressive job at meeting the healthcare industry's needs for comprehensive patient engagement solutions in my opinion. They've been expanding their platform to cover a range of message types, including branded and unbranded ones that can be targeted to specific diagnostic codes. On top of that, OptimizeRx has also developed patient and physician engagement tools that use AI to identify those who may need specific treatments or who are showing signs of non-compliance. Although the AI solutions the company is using are more for streamlining workflow than anything, identifying key treatments is still something that might be better done by humans . Their therapy initiation workflow solution has also been a hit, streamlining the paperwork process necessary before pharmacies can dispense medication. All in all, I think OptimizeRx is stepping up and delivering valuable services to the healthcare industry and this will pay off heavily in the long term as they establish themselves as the company for others to go to.

According to management , the total digital commercial spend in healthcare is estimated to be around $10 billion, of which $7.4 billion is allocated for access and affordability, awareness, and adherence. The increased spending by large companies is what creates such an exciting opportunity for the company because they can now tap into a relatively underpenetrated market and become a leader in the space. One of the risks, however, is that there still is not a large number of companies spending capital in the space, creating a pretty limited customer pool. But as time goes on I think more and more companies will be entering the space and introducing more capital to circulate.

A Look At The Earnings

OptimizeRx Corp. recently reported its Q4 and full-year 2022 financial results, with revenue for the quarter at $19.7 million, representing a 3% year-over-year decrease but a 30% quarter-over-quarter increase. The company's gross profit also increased by 1% year-over-year to $12.5 million, with gross margins going up from 61% to 63%. OptimizeRx generated $10.7 million in cash flow from operations in 2022 and repurchased 1.2 million shares at an average price of $16.49 per share.

While there were some headwinds for the company, I think it's reassuring to see the CEO Will Febbo remain optimistic about the future of both themselves but also the industry. In the report, he said the following "We continue to be at the nexus of a paradigm shift in health technology enablement. The culmination of our technology investments, partnerships, and acquisitions in combination with the largest workflow point-of-care network in the U.S., has created a robust single-stop, total solution suite that is delivering care-focused engagement between life science organizations, doctors, and patients while driving a superior ROI for the brands that we serve”. I think this statement touches on what I discussed above here, the market tailwinds they expect to experience. The increased commercial spending by bigger companies in the sector is a big opportunity for OptimizeRx Corporation in my opinion.

Moving forward I will be keeping a close eye on the way the company manages to take on new clients and also scale its business without margins taking a large hit. Being a relatively small company they are quite prone to any headwinds or slowdowns in spending, which could make the price fluctuate heavily. But if you are in it for the long term, the current price is like I said previously a good entry point.

Risks

Although I'm optimistic about the future of OPRX, it's important to acknowledge the potential risks the company may face. One of these risks is the potential entry of FinTech companies into the healthcare space, which could pose a significant threat to OPRX's market position. There's also a possibility that these companies could acquire one of OPRX's competitors, such as ConnectiveRx, Luma Health, or Surescripts, leading to increased competition in the industry. While OPRX has several unique features, such as its large network, innovative platform technology, and strong customer base, other players may attempt to challenge its market share and win over big pharma customers. Losing even a few of these customers could potentially derail OPRX's growth trajectory. So, it's important to be aware of these risks and monitor the situation closely. But I think that given the debt-free position of the company, they can aggressively invest and take and secure market share and establish themselves as a leader before too much competition enters.

Valuation and Conclusion

According to industry reports , major pharmaceutical companies are expected to continue increasing their digital marketing spend in the next several years. If OptimizeRx captures a proportionate share of this spend the potential for a large return on investment here is very possible.

Looking at the current valuation of the company, right now they are trading at a forward p/e of around 43. This might seem extremely high, but the investment thesis here is based on the company's ability to capture the large TAM. With an impressive FCF margin of over 23% the company has been able to buy back shares during 2022 and maintain a strong cash position. I think this FCF margin is what will help propel the company into being able to invest efficiently in themselves and take more market share. Without any long-term debt either the possibility of taking on debt to boost growth is a reasonable step in my opinion. What I think might hold back investors is the higher p/e compared to the industry. But that is something you will have to accept when it comes to smaller companies that are still in their growth phase.

Overall, I believe that OptimizeRx is poised for exceptional growth in the future and recommend a buy rating for the stock. The company's large and expanding total addressable market, coupled with favorable industry trends like the digitalization of healthcare, bodes well for increasing demand for its solutions. With a scalable operating model and a strong network of large customers, OptimizeRx has a competitive edge in the market. All in all the company presents an exciting opportunity at the current price to start a long-term position that can capitalize from a growing market.

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