Hims & Hers Health: A Telehealth Giant on the Rise

Hims & Hers Health (NYSE: HIMS), a trailblazer in the telehealth industry, has seen its stock price skyrocket by an impressive 43% over the past week. This surge has been fueled by a combination of strategic marketing and growing demand for its services. One of the most significant catalysts for this growth was the company’s bold move to air a Super Bowl commercial, which sparked widespread conversation. The ad shed light on the obesity crisis in the U.S. and criticized the healthcare system’s high costs and practices that limit access to essential weight-loss medications. By positioning itself as a solution to this issue, Hims & Hers has captured the attention of both consumers and investors.

A Compelling Business Model: Combining Accessibility and Innovation

Hims & Hers operates a telehealth platform that connects patients with licensed healthcare professionals, offering treatments for a range of conditions, including hair loss, sexual wellness, and weight management. The company’s revenue is predominantly driven by retail sales, which account for a whopping 97% of its total revenue. Hims & Hers has capitalized on the growing demand for GLP-1 weight-loss medications, such as semaglutide, which it offers in a compounded form. This approach has proven to be highly effective, with the company’s compounded version of semaglutide priced at $165 for a four-week supply—significantly cheaper than brand-name alternatives like Wegovy and Zepbound, which cost over $1,000 for the same duration.

However, it’s important to note that these compounded medications are not FDA-approved, which could pose risks to the company’s long-term growth. Despite this, Hims & Hers has benefited from the recent shortages of FDA-approved weight-loss drugs, such as Ozempic and Wegovy. As these shortages persist, compounded alternatives have become increasingly popular, giving Hims & Hers a temporary edge in the market.

Financial Growth: A Story of Impressive Metrics

Hims & Hers has demonstrated remarkable financial growth over the past few years. The company’s revenue has surged from $272 million in 2021 to $1.2 billion today, reflecting a 357% increase. This growth has been supported by a significant expansion of its user base, which has grown from 0.5 million subscribers in 2021 to over 2 million today. Additionally, the average revenue per subscriber has risen from $51 to $60 during the same period, showcasing the company’s ability to increase customer spending over time.

The company’s P/S ratio has also seen a notable rise, climbing from 4.5x in 2021 to 10.9x today, reflecting investor confidence in its growth potential. However, this growth has been partially offset by a 22% increase in total shares outstanding, which now stand at 228 million. Despite these challenges, Hims & Hers has made significant strides in improving its profitability. The company reduced its operating loss from $115 million in 2021 to just $29 million in 2023, and over the past twelve months, it has turned a profit, reporting an operating income of $43 million. This improvement is further reflected in its operating margins, which have expanded from -42.3% in 2021 to 3.5% today.

Market Dynamics and Competition: Navigating a Changing Landscape

The telehealth industry is highly competitive, and Hims & Hers faces significant challenges as it navigates this dynamic landscape. While the company has benefited from the shortages of FDA-approved weight-loss medications, the situation is expected to stabilize as supply chains recover. For instance, the FDA recently reported that Eli Lilly’s Mounjaro and Zepbound are no longer in short supply, which could reduce demand for compounded alternatives. This raises concerns about the sustainability of Hims & Hers’ growth, as its addressable market may shrink once traditional medications become more readily available.

Furthermore, the company’s stock price has experienced significant volatility over the past few years. In 2021, HIMS shares saw a sharp decline of 55%, followed by a modest decline of 2% in 2022. However, the stock rebounded strongly in 2023 with a 39% gain, and as of 2024, it has delivered an impressive 172% return. While these returns are attractive, the volatility underscores the risks associated with investing in Hims & Hers. Analysts have also expressed caution, with an average price target of $26 for the stock, representing a 55% discount from its current price of $60. This discrepancy highlights the uncertainty surrounding the company’s long-term prospects and the potential for market sentiment to shift.

Long-Term Risks and Investment Considerations

Despite its impressive growth, Hims & Hers faces several risks that investors should carefully consider. The company’s reliance on compounded medications, which are not FDA-approved, poses a regulatory risk. Should these medications face increased scrutiny or competition from brand-name drugs, Hims & Hers could see a decline in sales. Additionally, the company’s high P/S ratio and volatility make it a risky investment for those seeking stability.

Investors who are wary of Hims & Hers’ volatility but are still interested in capitalizing on the telehealth industry’s growth may want to explore more diversified investment strategies. For example, the High-Quality Portfolio, which has consistently outperformed the S&P 500 with returns of over 91% since its inception, offers a more balanced approach. This portfolio focuses on minimizing risk while delivering strong returns, making it an attractive option for investors seeking steady growth without the extremes of volatility seen in HIMS stock.

Conclusion: A Promising Yet Precarious Future

Hims & Hers Health has undoubtedly made waves in the telehealth industry, with its innovative approach to weight-loss medications and its ability to connect patients with healthcare professionals through its online platform. The company’s financial performance has been nothing short of impressive, with revenue skyrocketing and profitability improving significantly over the past few years. However, as the market for weight-loss medications evolves and FDA-approved drugs become more readily available, Hims & Hers will need to adapt to maintain its competitive edge.

For now, the company’s ability to capitalize on current market conditions and its strong branding efforts, such as its Super Bowl commercial, have positioned it as a leader in the telehealth space. Yet, investors must remain cautious, as the company’s long-term success is far from guaranteed. With a stock price that has surged to $60 but an average analyst price target of $26, the risks are clear. While Hims & Hers offers the potential for high returns, it also comes with high volatility and uncertainty. As such, it’s crucial for investors to weigh the company’s growth potential against its risks and consider whether its stock aligns with their investment goals and risk tolerance.