Telehealth company Hims & Hers Health (HIMS 13.15%) found itself immersed in controversy recently after some polarizing social media posts by the company's CEO sparked debate. The stock took a bit of a hit as a result Then the company released first-quarter earnings amid the uproar, giving bulls a lot to cheer about.
While it's often a bad idea for a company to go anywhere near political discussions, there are enough reasons the business is doing well to help overcome its recent stumble and become an excellent long-term investment.
Here are six potential reasons to buy Hims & Hers stock today.
1. Hims & Hers continues to innovate its product lineup
Hims & Hers is a telehealth company that lets patients digitally consult with professional care providers and have any prescribed treatments shipped to the patients' homes. It's not a unique business model, but the company's stellar execution has driven success even as potential non-traditional healthcare competitors like Walmart have tried and later abandoned their ventures.
Healthcare is so flexible that it unlocks many product innovation opportunities for management. In its latest report, Hims & Hers teased upcoming product releases due in the coming weeks. Hims & Hers already sells treatments for a range of conditions and ailments, ranging from sexual health to hair loss, and it appears that the product offering will expand further, potentially appealing to new customers and cross-selling to existing users.
2. Fourteen straight quarters of exceeding estimates
Aggressive product expansion has helped the company grow faster than analysts can model. Hims & Hers' Q1 earnings covered its 14th quarter as a public company, and it's the 14th consecutive quarter that the company topped analysts' revenue estimates. The "beat and raise" has become the norm, and management once again raised full-year revenue guidance. Hims & Hers now expects full-year 2024 revenue of $1.2 billion to $1.23 billion, from prior guidance of $1.17 billion to $1.2 billion.
3. Hims & Hers is comfortably GAAP profitable
Even more importantly, growth isn't coming at the expense of profits. Hims & Hers is achieving stellar 82% gross margins, which helped the company turn a GAAP profit while maintaining over 40% revenue growth. This was the company's second consecutive quarter with a GAAP profit, which should mean earnings begin spinning faster as revenue growth outpaces expenses.
The company's zero debt and $200 million in cash on the balance sheet are bonuses. Management can continue investing heavily in growth and potentially repurchase shares to support earnings growth further.
4. Membership growth continues
Unrelenting subscriber growth shows how appealing the company's brand resonates with patients. Memberships grew 41% year over year in Q1, and the 1.7 million subs are becoming large enough that sustaining such growth is very impressive.
Image source: Hims & Hers Health
As you can see above, Hims is leaning on subscriber growth. There is little growth in revenue per user. I don't think that's bad at this point; it's more likely that Hims is staying aggressive with prices to take market share.
5. Hims & Hers has a large addressable market
To support this point, I want to mention something CEO Andrew Dudum mentioned on the earnings call. Dudum has hinted at the platform's growth potential before, but this time, he specifically called out a long-term goal, citing the potential for tens of millions of subscribers on the platform. Even 10 million would be over five times the current subscriber count.
This will center around the company's previously noted pillar care categories:
- Sexual Health.
- Men's Dermatology.
- Women's Dermatology.
- Mental Health.
- Weight Loss.
That's the magic of making Hims & Hers a brand; it allows management to dip into multiple end markets under the same name. Growth is served in two ways: Hims can treat numerous people for a condition or ailment or one patient for multiple ailments. It's becoming an all-in-one healthcare ecosystem -- no need to see one doctor for hair loss and another for sexual health.
6. Hims & Hers has a bargain valuation
You can see that the stock trades at a fraction of the valuation it commanded as the market bubbled in favor of growth stocks. I won't say the stock deserves to trade over 20 times its enterprise value. Still, the business is clearly in a better financial position than ever, yet the stock trades at nearly its lowest valuation on record.
HIMS EV to Revenues data by YCharts
This stock still has a market cap of just $2.6 billion. Suppose we never see tens of millions of subscribers being projected and the total only reaches 1 million. That's more than a fivefold increase in the business, without even looking at what the stock's valuation should be. There's been no indication of slowing growth, and the company's success story is now going on four years, so this isn't a flash in the pan.
Investors have a genuine potential compounder trading near all-time lows despite stellar operating performance. It seems like quarters like the one investors just saw will eventually force the share price upward. It could be a good idea to buy the stock before that happens.
