Let’s dive into a promising healthcare growth stock, Hims & Hers Health.
Founded in 2017, Hims & Hers Health (HIMS) is reimagining healthcare by offering prescription drugs, over-the-counter products, and personal care directly to consumers. They went public in 2021 through a SPAC merger and have since undergone remarkable changes.
Initially, the stock experienced a rocky path, with prices hitting a low of $2.72 in 2022. However, it bounced back and reached a peak of $35.02 in late 2024. Today, shares are trading around $30.73, while the company reports solid growth in subscribers and revenue.
Looking at their latest financials, Hims & Hers recently reported $401.6 million in revenue for the third quarter of 2024, marking a 77% increase from the previous year. Their free cash flow rose sharply by over 311%, reaching $79.4 million. A significant driver of this growth has been their subscriber base, especially for their weight loss drug options, which is expected to grow by 40% over the next year. They now have developed a strong user base of 2 million subscribers, up 44% year over year, generating an average of $67 per month per user.
The company’s balance sheet is also impressive, with $254 million in net cash. This gives management the flexibility to invest in growth or buy back shares rather than focus solely on debt repayment.
However, there are risks to consider. Hims & Hers faces challenges typical of many new public companies, such as stock-based compensation, which can lead to increased costs. Recently, the company expanded by acquiring MedisourceRx, issuing 976,341 shares to finance the purchase. Since going public, the outstanding shares have increased by 15%, highlighting the issue of dilution for existing shareholders. Despite spending $78 million on share repurchases in 2024, the number of outstanding shares still grew slightly.
Another risk involves their reliance on FDA regulations. They can produce and sell compounded versions of patented drugs under special conditions, but recent FDA rulings may limit those operations. For example, the FDA recently declared a shortage of the weight loss drug tirzepatide resolved, giving Hims & Hers a deadline to exit that market. However, they plan to launch liraglutide, a generic alternative, in 2025, offering a viable backup to maintain business operations.
Looking ahead, management expects fourth-quarter 2024 revenue to reach between $465 million and $470 million, reflecting an 88% to 91% growth. As the weight loss drug market evolves, investors should stay alert to how Hims & Hers adapts its offerings. The company is focusing on automation to enhance efficiency and is also exploring strategic mergers and acquisitions for future growth.
For potential investors considering whether to buy, sell, or hold, it’s important to evaluate valuation. Currently, Hims & Hers is trading at 47 times its trailing free cash flow, which might seem high for value investors but indicates strong growth potential for those interested in the healthcare sector.
In the coming months, shareholders should watch how management navigates the evolving market and manages share count. If they continue to grow revenue and free cash flow at a rapid pace, Hims & Hers might be a solid buy for growth-focused investors.
