Hims & Hers Stock: The Undervalued Gem Poised For Growth

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Thesis

Hims & Hers Health, Inc. (NYSE:HIMS) remains one of the most undervalued companies on the market, even after a test of previous ATH’s. Over the coming years, Hims can provide considerable upside returns based on its current and future product offerings, as well as robust subscriber growth. I believe that the future is bright for Hims, and as it currently stands, is the largest position in my portfolio.

Capitalizing On Strong Growth

Last month, Hims reported their Q1 ’24 earnings, and they were very impressive. YoY subscriber growth hit 41%, going from 1.2 million subscribers in Q1’23 to 1.7 million in Q1 ’24. In the same period, revenues grew 46% from $190.8 million in Q1 ’23 to $278.2 million. Recent additions to the product mix offered by Hims have helped drive higher YoY revenue growth. Just last year, the company launched five new products that have driven higher customer retention rates.

Current guidance suggests revenues between $292 million and $297 million for Q2 ’24 (40%-43% YoY growth) and FY 2024 revenues at between $1.2 billion and $1.3 billion (38%-41% YoY growth). It appears that the current guidance provided by management does not include the new GLP-1 offering.

During their Q1 ’24 conference call, it was noted that the retention rate for personalized products is greater than that of their generic counterpart. As Hims continues to launch new products over the coming years, we should expect customer retention to grow as personalized products gain traction.

Increase In Personalized Solutions

Hims offers a wide variety of products that customers can personalize based on their needs. This is critical for the company, as individuals who use medications tend to have preferences in how they take them. Some prefer oral medications, while others may prefer a spray, and this is where Hims excels. Personalization has become their bread and butter, while still being able to offer customers the best value at the lowest price.

In Q1 ’24, Hims reported a 176% YoY growth in subscribers opting for personalized products. As more customers choose personalized products, Hims should see a higher retention rate for subscribers, thus leading to more consistent revenue streams.

The Emphasis On Weight Loss

Nationally, almost 42% of Americans are considered obese, with around 30% being classified as overweight. For reference, in 2000, the obesity rate was only at 30%. More and more individuals are seeking products that can help them lose weight safely, and today, Hims offers more weight loss products than ever, especially with the introduction of GLP-1 injections available for purchase via subscription.

With branded medications Wegovy and Ozempic currently in shortage, Hims GLP-1 injections with the same active ingredients will allow customers to receive their medications without navigating shortages or associated costs. Hims touts its ability to provide its alternative to Ozempic and Wegovy, a compounded semaglutide, at a significantly lower price than companies like Eli Lilly (LLY) and Novo Nordisk (NVO). With monthly subscriptions as low as $199 a month, Hims will be able to take market share as customers seek lower-priced alternatives.

Through a newsletter, Goldman Sachs had previously projected Eli Lilly’s global sales of GLP-1 agonists through 2030 to be around $100 billion, but has recently increased this estimate to USD 130 billion. Hims has the opportunity to capture a significant share of the growing demand through their lower price point injections.

Also, Johnathan Gruber, a Professor of Economics and Chairman of the Economics Department at MIT, has said that if 40% of Americans with obesity take GLP-1s at current prices ($15,000 per year), the bill would be almost $1 trillion annually. Once again, Hims appears poised and ready to supplement a lower cost alternative.

The search interest for GLP-1s on Google has also increased over the past few years. Elevated search activity for these drugs signals significant online demand, something Hims should be able to capitalize on going forward. As awareness and demand continue to grow for GLP-1s, Hims can leverage its reputable online presence and direct-to-consumer model to meet market needs.

With the addition of compounded GLP-1s to the company’s offerings, it is expected to increase the number of new subscribers, introducing them to other treatments provided by Hims. One of the major focuses for the company revolves around customer retention and engagement. If Hims can keep monthly online revenue per subscriber above the current $55, we should see significant earnings growth over the next couple of years.

Additionally, Christopher D. Payne, a director at Hims, purchased 110,000 shares at $17.74 on the 21st of May. Purchasing after the GLP-1 announcement could be a signal that he believes there is serious upside due to this catalyst.

Valuation

This is the most difficult part of the equation. Giving a fair value to a young, growing company is quite troublesome, but not impossible.

After a quick run-up to the previous ATH as seen in 2021, Hims is still significantly undervalued, in my opinion. My valuation will be based on conservative numbers through FY2028.

I used the midpoint for revenue growth in FY2024 (39%) and gradually declined that number conservatively over the next few years. In FY2028, we can expect Hims to do around $3.24B in revenue and almost $650 million in earnings (given profit margins of 20%). If we take the $650 million in net income, multiply by a fair P/E of 25, add cash, and divide by shares outstanding, we get a fair value of $55.97. This represents a 187.45% upside from current prices.

I used a P/E of 25, but if you feel like a 25 P/E is far too conservative for a rapidly growing company, you can always increase that number, and the fair value would be even higher.

Note: I used 237,000,000 as the float for shares, factoring in dilution and buybacks.

I have also added a quick DCF model and made some assumptions that I will explain below:

• Same revenue growth rates as before: 39%, 30%, 22%, 18%, and 15% for 2024, 2025, 2026, 2027, and 2028, respectively.
• Same net income and profit margins for each year
• CapEx growth at 25% per year for 5 years
• 20% yearly increase in net working capital
• 12.5% weighted average cost of capital and a terminal P/E of 25x, just be conservative

After the computation, we get a more relaxed price target than before at $33.73 per share, representing a 39% increase from current prices. Once again, I have used more conservative numbers in my valuation, as I don’t want to be too aggressive.

I traditionally do not focus too heavily on short-term price action, but given that Hims falls back towards the $20 mark, I would re-rate with a strong buy.

Risks

It’s no secret that Hims has done a great job executing so far, but it’s important to note that the business model is not bulletproof. For starters, the only reason Hims is able to produce compounded GLP-1s is because Eli Lilly and Novo Nordisk are struggling to make enough product to go around. Demand for these “miracle drugs” is incredibly high, so Hims & Hers are using this shortage period to sell their compounded drugs. The shortage timeframe is currently unknown (expected to go into 2025), so it’s hard to tell how long Hims is going to be able to offer GLP-1s.

Hims has also found some controversy with its CEO, Andrew Dudum, over the past month. After comments surrounding the Israel-Palestine protests, the firm shaved around $200 million in market cap. Given his propensity to speak out on controversial topics, this is something to keep in mind before you take a position.

Conclusion

Hims & Hers Health innovation in personalized health products continues to bring value to shareholders. With the addition of affordable GLP-1 injections to their product offerings, Hims appears to still trade at a discount. Given the risks and potential rewards, I believe Hims is a great buy at these prices.