What a difference one day can make. Until August 8, shares of Doximity (NYSE: DOCS)a healthcare-focused networking platform, have been in the red for the year. However, as of August 9, the company’s shares rose more than 33%, making the company’s year-to-date performance better than the overall market. As investors might suspect, Doximity’s gains had something to do with its recent quarterly report, but even after that jump, shares are down 32% since its 2021 IPO.

If there is further upside potential for Doximity, it is worth investing in the stock now. Is that the case? Let’s find out.

DOCS data from YCharts

Doximity’s strong earnings report

First, let’s look at how Doximity’s business works and how it makes money. The company provides a platform that allows healthcare professionals, including doctors and nurses, to search for jobs, communicate with others in their field, learn about the latest medical news and research, obtain important confidential patient documents, and even conduct telemedicine appointments.

Doximity makes most of its money through subscriptions from healthcare systems and pharmaceutical companies that use the platform to post job openings and pitch new drugs to doctors.

The company’s business is popular with healthcare professionals, with more than 80% of U.S. doctors using it, as well as the top 20 pharmaceutical companies and the top 20 hospitals and health systems. Yet Doximity’s financial results have not been great recently – revenue growth has been declining after a pandemic-related boom.

DOCS revenue data (quarterly year-on-year growth) by YCharts

Doximity was moving in the right direction in its most recent reporting period, the first quarter of fiscal 2025, which ended June 30. The company reported revenue of $126.7 million, up nearly 17% year over year. Adjusted net income per share of $0.28 was up 47.3% from the same period last year. Doximity beat revenue and earnings estimates during the period, which explains the rapid rise in its stock price.

In addition, margins remain incredibly strong. The company reported an adjusted gross margin of 91.6% in the quarter, compared to 90.3% a year ago. Adjusted net profit margin of 44.1% was higher than the 37.5% in the year-ago quarter.

Can Doximity maintain the momentum?

One reason Doximity’s revenue growth has slowed in recent years is that the company isn’t acquiring nearly as many new customers. The net revenue retention rate, which tells us about renewals, new customer acquisitions, and churn, rose from 167% in the period ending June 30, 2021, to 114% last quarter. However, some of Doximity’s largest customers, including the top 20 pharmaceutical companies, are sticking with Doximity.

That’s a good sign for a company that offers valuable services in one of the most important industries and remains relatively stable regardless of the economic situation. In addition, Doximity benefits from the network effect. The more doctors there are on its platform, the more attractive it becomes to its customers and vice versa. Could there be a competing platform that takes significant market share away from the company? That’s definitely a maybe.

One problem with Doximity is that sites like LinkedIn also benefit from the network effect and have an extensive network of professionals, including probably many doctors. LinkedIn also arguably benefits from a stronger brand name and is owned by Microsoftan incredibly well-funded technology company that could build a competing platform using LinkedIn as a launch pad. So while Doximity has created a network effect, its business is not completely isolated from the competition.

The good news is that the company still sees significant potential. Doximity values ​​the total market (TAM) at $18.5 billion – and hasn’t even scratched the surface of this opportunity. The stock could deliver strong returns if it makes progress within its TAM. Still, valuation could also be a concern.

DOCS P/E data (Forward) from YCharts

The average price-earnings ratio for the Healthcare industry is 19.2 at the time of this writing, while the undervalued range for price-to-sales typically starts at 2 and below. Even if smaller high-growth companies are allowed to have valuation multiples that seem somewhat unreasonable, the stock could plummet if Doximity cannot maintain the solid financial results it has recently reported.

Bottom line: Doximity is a worthwhile investment for investors who can live with a certain amount of risk and volatility. It could ultimately achieve above-average returns.

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Prosper Junior Bakiny does not own any of the stocks mentioned. The Motley Fool owns and recommends Doximity and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.