Hims & Hers Health (HIMS) Pre-earnings Analysis
The popular telehealth company Hims & Hers is gearing up to report earnings this week on November 3rd after market close. The stock is up more than 80% year to date, but the past six months have been uneventful as investors assess whether or not the company’s growth is sustainable. Hims started off as a company focused on men’s health, but has expanded into women’s health in recent years, allowing them to sustain revenue growth. The company has also expanded into international markets and introduced several new products to continue boosting growth.
The problem we see with their continuous introduction of new products is that it may not be a path to sustainability. While new product launches may help sell to existing customers, they’re not necessarily a way to maintain growth in the long run. Therefore, the focus on these earnings will likely be about subscriber growth, U.S. market acquisition, and international market expansion. While Hims may be a popular brand thanks to their extensive marketing, they still have a fairly small user base at 2.4 million per their last report. That puts them in a “high risk” category and labels their stock with high Beta of 1.85-2.10. Imagine Beta as a measure to how much a stock moves against the index on its green and red days, a Beta of 2 means $HIMS moves 2x the index; this is why we see the stock have such volatile up and down moves and large ranges.
As for revenue, the company grew revenue at 69% last year. The company’s expansion into weight loss treatment gave them a significant boost as well as expansion into international markets; however this goes back to the point we made above…that adding new products can only sustain growth for so long. We need to see large subscriber growth in order to call this a safer buy. As for profit margins, the company’s net margin came in at 8.45% and 7.8% in the first two quarters of this year, respectively, leaving them at a price to earnings ratio of 55x (TTM). That’s a high price to earnings ratio compared to the S&P 500’s average of 30x, which is already argued to be high. Nonetheless, investors are sometimes willing to pay for a high P/E even they see opportunity for large growth, but we can see that investors have been reluctant to do that for HIMS over the past six months as the stock continues to swing from lows of 25.00 to highs of 78.00 (This goes back to the high Beta we mentioned earlier).
There’s a high likelihood that Hims will find its way out of this range soon, perhaps this earnings report will be the catalyst. The company’s projections are promising enough to suggest that it’ll move higher, but that’s only if they can sustain outlook and continue meeting expectations. They’re not in a position where they can afford an earnings miss at this young age or this little revenue…a company like this needs to maintain strong growth to keep investor’s attention or it can turn into a penny stock real quick. Investors should bear the risks and treat them as a “monitor closely” type investment.
Option chain analysis:
Looking at its option chain, $HIMS November 7th expiration currently reflects an implied volatility reading of 173%, which translates to about a (+/-) $7 move from the underlying stock by expiration. The direction largely depends on the outcome of their earnings and what’s said on the call.
-----------------------------------------------------------------------------------
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice. Investing involves risk, including the possible loss of capital. Always conduct your own research or consult with a licensed financial advisor before making investment decisions.
Hyper Stocks and its contributors may hold positions in some of the securities or assets mentioned above. These positions are subject to change without notice. Any opinions expressed reflect current views at the time of writing and are not guarantees of future performance. Past performance does not guarantee future results.