Is the soaring Hims & Hers stock a good investment?

Hims & Hers (NASDAQ: HIMS) stock has done well since the company went public a few years ago. It has soared by over 193% in the last 12 months and by 112% this year, outperforming the benchmark Nasdaq 100 and S&P 500 indices and other companies in the healthcare industry.

Hims & Hers is disrupting healthcare

Hims & Hers, popular for its podcast advertisements, has become one of the fastest-growing companies in the healthcare sector. 

Its income statement shows that total revenue rose from over $82.6 in 2019 to over $1.06 billion in the trailing twelve months, a figure that will continue growing in the coming years.

For starters, Hims & Hers is a company that has disrupted the healthcare industry by offering drugs online. It mainly focuses on some of the fastest-growing industries in the sector like sex, hair growth, weight loss, anxiety, and sex.

Recently, a substantial part of its business growth has come from the weight loss segment, thanks to its low-cost and effective products. It is also seeing strong growth in other areas like sex and hair growth.  

Hims & Hers has also become a leading player in the subscription industry, where it serves over 2 million customers. The management believes that it is still early in its operations and that the growth will continue for many years to come.

Hims’ success happened at a time when traditional pharmacy companies were imploding. Rite Aid has already filed for bankruptcy, while Walgreens Boots Alliance (WBA) stock has plunged by over 60% this year.

CVS Health, which was always seen as the strongest name in the pharmacy industry is also struggling and considering separating its empire. That would include separating its pharmacy business with Aetna, which it acquired for over $70 billion.

Hims financial results

The most recent financial results showed that Hims & Hers business was doing well as the number of customers rose. It ended the quarter with 1.8 million subscribers, a big increase from 1.3 million in the same period last year. 

These customers are also paying a higher price, which explains why its revenues have risen. The average monthly revenue per average subscriber has risen to $57, an 8% increase from the same period last year. 

Altogether, Hims & Hers’ online revenue rose by 53% to over $308 million, while its wholesale figure jumped by 31% to $8.8 million. Its revenue surged by 49% to $593 million for the first half of the year.

Hims expects its business to continue doing well in the year’s second half. Its revenue will be between $375 million and $380 million, while its adjusted EBITDA will be between $35 million and $40 million. 

Hims full-year revenue will be between $1.37 billion and $1.4 billion, while its EBITDA will be between $35 and $45 million. There are rising odds that the company will do much better because it has, historically, been highly conservative.

Read more: Hims & Hers stock price has gone parabolic: Is it a good buy?

High-margin business

Hims & Hers has several potential catalysts in the future. First, the company’s growth is expected to continue to do well in the longer term. Analysts expect that its revenue will rise by 58.30% this year to $1.4 billion. It will then rise to almost $2 billion in the following year.

Second, the company has a chance to become highly profitable when it moves from the current growth phase. That’s because, unlike Walgreens and CVS, it is an online firm with no physical stores. As a result, its gross margin is 82%, while its net margin is 1.7%. In contrast, Walgreens has a gross margin of 18% while CVS has 14%.

Third, Hims & Hers is a market leader in an industry with the potential of having millions of customers globally because of the solutions it is offering. For example, it is estimated that America has over 100 million obese people. If just 5% became its clients, that would bring its subscribers to 5 million.

Another example is that there are over 30 million Americans with erectile dysfunction. The company would see substantial growth if a tiny number of these people became clients.

Analysts are upbeat about Hims, which they believe has room to grow despite its valuation concerns. The average stock target is $21.93, up from the current $18.95.

Hims & Hers stock analysis

HIMS chart by TradingView

The daily chart shows that the Hims & Hers share price has bounced back in the past few weeks. This rebound happened after it bottomed at $13.4 on September 6. It has also risen above the key resistance point at $17.17, its highest swing in March.

The stock has jumped above the 50-day and 200-day Exponential Moving Averages (EMA). Also, it has jumped above the 38.2% Fibonacci Retracement point. 

Therefore, the stock will likely continue rising as bulls target the key resistance point at $25, its highest point this year. This target implies a 35% increase from the current level.

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