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Baron Funds: “GoodRx (GDRX) is Profitable and Growing Rapidly with Strong Margins and Cash Flows”

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Baron Funds, an asset management firm, published its “Baron Health Care Fund” third quarter 2021 investor letter – a copy of which can be downloaded here. A return of 1.18% was delivered by the fund’s institutional shares for the third quarter of 2021, outperforming both its S&P 500 and Russell 3000 Health Care benchmarks that delivered 0.58% and 0.17% returns respectively for the same period. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.

Baron Funds, in its Q3 2021 investor letter, mentioned GoodRx Holdings, Inc. (NASDAQ: GDRX) and discussed its stance on the firm. GoodRx Holdings, Inc. is a Santa Monica, California-based digital healthcare platform with a $17.3 billion market capitalization. GDRX delivered an 8.45% return since the beginning of the year, while its 12-month returns are down by -12.92%. The stock closed at $43.75 per share on November 5, 2021.

Here is what Baron Funds has to say about GoodRx Holdings, Inc. in its Q3 2021 investor letter:

"We initiated a position in GoodRx Holdings, Inc., a leading consumerfocused digital health care platform. The company’s core offering is a free App that provides consumers with access to discounts on prescription medications. This increases medication adherence since GoodRx’s discounted prices enable consumers to afford to fill their prescriptions, resulting in better health care outcomes and lower costs to the health care system. GoodRx generates revenue each time the consumer uses the GoodRx discount card for a new or refilled prescription. As GoodRx attracts more consumers to its platform, the company increases its scale, which enables it to negotiate lower prices, which attracts more consumers. GoodRx has a growing subscription business where consumers pay monthly subscription fees to access even lower drug prices. The subscription business increases GoodRx’s revenue visibility and customer lifetime value. GoodRx has a strong brand with exceptionally high Net Promoter Scores among consumers and health care providers. With 20 million monthly visitors, GoodRx has a valuable platform that it is monetizing by adding new products and services. Recent examples include its telehealth offering, pharmaceutical manufacturer solutions business, and proprietary health care content, which should help solidify GoodRx’s positioning as the go-to health care platform for consumers. GoodRx is profitable and growing rapidly with strong margins and cash flows."

Source: Unsplash

Based on our calculations, GoodRx Holdings, Inc. (NASDAQ: GDRX) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. GDRX was in 28 hedge fund portfolios at the end of the first half of 2021, compared to 24 funds in the previous quarter. GoodRx Holdings, Inc. (NASDAQ: GDRX) delivered a 39.78% return in the past 3 months.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

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Disclosure: None. This article is originally published at Insider Monkey.