Hims and Hers Health is a stock I’m buying right now as the company is growing at an enviable pace while enjoying solid gross margins.
Oct. 11, 2021
In the last eighteen months, healthcare stocks have delivered outsized gains to investors. The COVID-19 pandemic emphasized the need for investments in this recession-proof sector and the dreaded virus also accelerated the digital transformation of verticals such as telehealth, making stocks like Hims & Hers Health (NYSE: HIMS) top bets right now.
Hims & Hers Health operates a digital health platform that connects consumers to licensed healthcare professionals. HIMS provides prescription medicines on a recurring basis, over-the-counter drugs, and cosmetics and supplement products in the wellness, sexual health, hair care, and skin care segments.
While HIMS has trailed the markets in 2021, it is a healthcare stock I am buying today.
A look at Hims & Hers Health financials
Shares of Hims & Hers Health went public in January 2021 via a SPAC or special purpose acquisition company, and have since declined by 25% in market value, grossly underperforming the broader markets.
Valued at a market cap of $1.5 billion, the company reported sales of $60.7 million in the second quarter of 2021. Its revenue grew 69% year-over-year (YoY) and was higher than Wall Street’s forecasts of $56.59 million. Hims and Hers Health reported a loss per share of $0.05 in Q2.
In 2021, it earlier forecasted sales to range between $221 million and $227 million. After its second-quarter results, the company expects revenue between $251 million and $255 million this year.
Analysts tracking the stock expect sales to rise by 71% year over year to $254 million in 2021 and by 27% to $322 million in 2022.
What I like about Hims and Hers Health
While most growth stocks are trading at a premium, Hims and Hers Health’s forward price to 2021 sales multiple is reasonable at 5.66x, while for Teladoc Health, this multiple is significantly higher at more than 11x. In addition, Hims and Hers reported gross margins of 78% in Q2, up from 71% in 2020, which means similar to most other growth companies, it is sacrificing the bottom-line to gain market share and drive sales.
The company ended the June quarter with $317 million in cash and minimal debt. Given its operating loss in Q2 stood at $17 million, Hims and Hers Health has enough runway before it will have to raise capital again.
Founded in late 2017, Hims and Hers Health already has 453,000 subscribers that grew by 75% year over year in Q2.
Risks to Hims and Hers Health’s share price
One key threat for Hims and Hers Health as well as peers such as Teladoc is the limited barriers to entry in the telehealth segment, which will attract new and legacy businesses. In fact, UnitedHealth which is one of the largest healthcare companies in the world said it’s looking to expand its reach in the direct-to-consumer health services market.
United Health might generate close to $284 billion in sales in 2021 and has the resources to aggressively grow its presence by acquisitions as well as organically.
Hims and Hers growth potential
Hims and Hers provide services in niche segments and is expanding its subscriber base rapidly. Its attractive valuation, robust gross margins, and strong financials make HIMS a top growth stock in the healthcare sector.
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