Disclaimer: information here is personal opinion. It is for educational purposes only and not investment advice.
Money in 500 summary
Ticker: HIMS; Date: 2/23/2024
My action
My confidence level is 8/10. I will buy the stock and wait for them to break even. If their growth rate continues, then I will likely continue to hold/add.
Research
About: Hims provides prescription and OTC medicines by asking a bunch of questions and having a provider review medications that are then delivered to home. They also enable telemedicine services. They started with niche men’s health issues (ED, baldness etc.) and have expanded to women’s health too. Think Stitch Fix for health.
Meaning: I am aligned with their mission of making medications easier. Visiting doctors is very time consuming and not necessary for everything. They personalize medications by asking a bunch of questions and save time by delivering medicines to customers’ homes without needing to talk to a doctor in most cases.
Moat
Brand: They have a good brand name by now.
Switching costs: Moderate switching cost moat. Customers give them health information which they use to personalize meds. Over time, they will have sufficient customer data to make it harder for customers to start from scratch with another provider.
Price: customers mention that they are cheaper than well known brands
Customers’ opinions: Amazon reviews for their OTC products (e.g., hair growth shampoos) are >4 stars.
Financials
Growth: Their revenue grew at 75% per year for the last 3 years. Last year they grew at roughly 50%. In that time, SG&A grew by 50% and 35% respectively. Their revenues are growing faster than their costs. Hence, their gross margins have improved from 73% in 2020 to 81% in 2023. They are losing money right now (TTM net income of $35M; -4.5% of revenue) but are very close to breaking even. I believe they will break even in 2024.
Subscribers: They have 1.4MM subscribers, +56% YoY. Average monthly revenue per subscriber is mostly flat at ~$50.
Debt: they have almost no debt.
3 yr forecast: Assuming reasonable growth, they will likely have FY 2026 revenue of around $2b with net income of around $100-$120M.
Value: At 40 PE, they should have a $4-5b market cap in 2026 (today it is $2b).
Insiders: CEO and CFO both selling their holding regularly. Hard to say why, as is the case with every company.
Competition
Teladoc has 2.6B revenue with <10% revenue growth. They have 70% gross margin but are spending aggressively on SG&A and R&D and hence are operating income negative.
Conclusion
Positives:
- Great growth, revenues and subscribers
- About to break even
- Good brand name and customer reviews.
- Cheaper than big name brands
- Considerable untapped potential of telehealth services
- No debt
Negatives
- Largest competitor, Teladoc, is still losing money and not growing much.
- Unable to expand average revenue per subscriber. They will need to expand to other health niches for that.
- Insiders selling stock regularly
- Lot of competition in this area. Might put margin pressure on them.