With shares up a blistering 150% year to date, Hims & Hers Health (NYSE: HIMS) boasts everything an investor could dream of these days: rapid expansion, a vast addressable market, and a reasonable valuation. Let's explore why it is my top growth stock to buy right now, as it builds a bridge between traditional healthcare and digital commerce.
Why Hims & Hers?
Founded in 2017, Hims & Hers is a telehealth company that provides medical consultations, prescription drugs, and over-the-counter healthcare products online . It established its niche by focusing on more sensitive consumer needs like sexual health, birth control, and hair loss.
After hitting public markets through a special-purpose acquisition company (SPAC) in 2020, Hims became a household name because of pandemic-era stay-at-home demand and its edgy marketing strategy.
For investors, the company is exciting because of its disruptive business model. As a direct-to-consumer healthcare provider, it can be much more convenient than traditional in-person healthcare. And by removing middlemen (such as insurance providers and pharmacies), Hims can also offer cost savings on some of its products.
The company also offers generic drugs in a variety of forms, like nasal sprays, chews, and gums.
Exciting long-term growth drivers
Hims' business is booming. First-quarter revenue jumped 46% year over year to $278.2 million, powered by a 41% increase in subscribers to 1.7 million. The company boasts an impressive gross margin of 82%, giving it leeway to pour money into marketing ($130.6 million in the latest period).
By saturating the internet with ads, Hims can create a high level of brand recognition, which can serve as its economic moat in the telehealth industry, which may have limited barriers to entry. On the flip side , advertising is a relatively discretionary business expense that can be cut back if management wants to boost operating profitability.
Image source: Getty Images.
Over the long term, Hims' rapid growth and early-mover advantage can allow it to take advantage of economies of scale (buying ingredients in greater volume for lower prices) and possible network effects by monetizing anonymized user data.
In May, the company released a compounded GLP-1 weight loss injection starting at $199 a month -- that's a whopping 85% less than brand-name versions of the drug like Ozempic and Wegovy, both sold by pharmaceutical giant Novo Nordisk .
Hims is also working on MedMatch, an artificial intelligence (AI) based diagnostic service that could use the company's library of user data to identify treatments in real time.
Is the stock still a buy?
It can be uncomfortable to buy a stock that has already more than doubled in a short period. But Hims & Hers still looks like a screaming buy. The company is in the early stages of monetizing what looks to be a long-term growth opportunity. And despite being a relatively small company ( market cap of $4.7 billion), it is already profitable, with first-quarter net income swinging from a loss of $10 million to a gain of $11.1 million.
With a price-to-sales (P/S) multiple of 5.2, Hims' stock is pricier than the S&P 500 average of around 3. But this premium looks fair considering its compelling business model and solid long-term potential.
Will Ebiefung has positions in Hims & Hers Health. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy .
Most Popular
Comments / 0