The risk-reward proposition is pretty one-sided here.
Telehealth company Hims & Hers Health (HIMS 2.34%) has been great for investors this year by almost any standard; share prices have nearly doubled from a year ago. Yet shareholders aren’t feeling the joy. The stock is down nearly 45% since peaking in June, and the negative momentum is weighing on investors. The market is suddenly questioning whether the company can succeed.
One concern being raised is that deep-pocketed Amazon now offers telehealth solutions. Does Hims & Hers stand a chance? Another concern is that the Ozempic shortage will eventually end, and investors are panicking about what that might mean for Hims & Hers.
These burning questions need answers, and that can only come by taking a deeper dive into this stock’s financials. Here is what you need to know.
The GLP-1 hype has left the stock
Hims & Hers is a consumer-facing telehealth company that offers medical consultations and prescribes medications and other products for various health-related conditions, including sexual health, skincare, hair loss, weight management, mental health, and more. At the moment, the market appears to be fixated on GLP-1 weight loss drugs like Ozempic as a make-or-break opportunity for the company. Sure, Hims & Hers sells compounded semaglutide to capitalize on the ongoing Ozempic shortage.
However, as I’ve previously written, the GLP-1 segment is only a small piece of the Hims & Hers story. The stock has continued falling since that article came out last month, so I wanted to follow up. Hims & Hers announced its GLP-1 launch on May 20, 2024. Today, the stock trades below where it was the day before this announcement:
It’s unclear when the Ozempic shortage will end and whether Hims & Hers will be permitted to produce compounded semaglutide at that point. However, you could argue it doesn’t matter now. The stock price has fallen so much that it’s like the GLP-1 hype train never left the station. Remember that Hims & Hers did $315.6 million in Q2 sales; roughly $15 million came from GLP-1s.
Is the Amazon threat real?
Competition is another popular argument against Hims & Hers stock. More specifically, e-commerce giant Amazon has launched its telehealth product, Amazon One Medical, across the United States. You have to respect a competitor like Amazon, though the mere mention of the company potentially competing in the same market has become a stock price depressor. Instead, investors should be questioning: Is Amazon an actual threat today?
It’s hard to say. The reality is that Hims & Hers has already faced down plenty of competition since its start. The company even published market-share data illustrating how it has thrived against similar competing companies:
Image source: Hims & Hers Health.
Sure, Amazon can offer consultations and prescribe products. McDonald’s started selling coffee to compete with Starbucks. For some, a cheaper, standardized product wins out. Others prefer the premium brand and personalized coffee. I see a similar dynamic between Hims & Hers and Amazon. Amazon might capture some market segments, while Hims & Hers continues to thrive with those who want a more personalized and premium experience.
It seems premature to assume Amazon will jump into the fray and wipe Hims & Hers out simply because it is Amazon. Amazon launched nationwide coverage in August last year; Hims & Hers grew revenue by 52% year over year in its most recent quarter. It looks as if Hims & Hers is, for now at least, doing just fine.
Is the stock a buy?
So if GLP-1s don’t matter much to the stock, what exactly are investors getting with Hims & Hers? So many people are focused on GLP-1s that they forget how great a business Hims & Hers is becoming:
HIMS Revenue (Quarterly YoY Growth) data by YCharts
The company has surpassed $1 billion in annual revenue (with virtually zero GLP-1 contribution) and is still growing at over 50%. Meanwhile, profitability is rapidly improving; the company converted 15% of its Q2 sales to free cash flow and is now profitable according to generally accepted accounting principles (GAAP). With $227 million in cash and zero debt, those profits are dropping straight to the bottom of the balance sheet.
Analysts believe Hims & Hers will earn $0.57 per share this year and $0.80 next year. That prices the stock at 17 times next year’s earnings, which seems mind-bogglingly cheap because earnings could soar due to a potent combination of revenue growth and operating leverage (sales grow faster than expenses, boosting profits).
I could be wrong. Perhaps Amazon will hurt Hims & Hers’s growth, or the GLP-1s matter more than they seem to. However, the potential upside is so high, and the valuation is so low, that it looks like a no-brainer to include Hims & Hers as a speculative stock in a diverse portfolio.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Justin Pope has positions in Hims & Hers Health. The Motley Fool has positions in and recommends Amazon and Starbucks. The Motley Fool has a disclosure policy.
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