Hims & Hers looks extremely cheap, I’m buying (NYSE: HIMS)

Hims & Hers looks extremely cheap, I’m buying (NYSE: HIMS)

Senior Asian woman having virtual appointment with online doctor, checking her prescription and medicine choice on smartphone at home.  Telemedicine, elderly and health care concept.

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Shares in Hims & Hers (NYSE:THE) have fallen more than 80% from their all-time high in February 2021. HIMS was grossly overvalued at its all-time high, but that big drop was also fueled by the highest and steadily rising inflation in decades. Interest rates. As a result, investors began to sell all high-growth companies. But HIMS doesn’t belong to a group of companies that tend to fall short of expectations these days. On the contrary, the management of the company shows real progress and HIMS continues to grow at a fast pace. The company has very high margins and a very strong balance sheet. The valuation of the company right now is very cheap. I believe that Hims & Hers can generate significant returns for long-term investors.

What is his and her health?

Hims & Hers is a telehealth company that sells various medications online that solve problems such as hair loss, depression, skin related problems and many more. The company was founded in November. 2017, by current CEO Andrew Dudum. Of the 9.6% of the whole company, which is something that I am personally very happy to see.

Now let’s focus on how Hims & Hers actually to work. First, patients receive free online consultations from a licensed healthcare professional. Patients answer a few simple questions about their condition. Second, patients will receive the prescription of the recommended treatment, after consultation. After that, patients will choose to make a one-time purchase or a subscription plan. Most of the clients choose the subscription plan as 90% of HIMS sales are recurring and this is another great advantage that the company has.

And finally, they will be able to receive ongoing care from licensed providers, either through video calls or messages. As you can see, this whole process is very simple, unlike the traditional medical system. In total, more than 7.2 million medical consultations have been made on Hims & Hers since its launch.

The company is very focused on ensuring that the customer has the best and most comfortable experience possible. This is also one of the reasons why I think HIMS is growing so fast.

How does it work

How it works (for him)

The market opportunity is huge

Before we focus on the market opportunity that HIMS has, which is really huge, I would like to tell you why HIMS is so useful. The whole problem lies in the current medical system. It is very outdated, uncomfortable and, most importantly, expensive.

Hims & Hers solves all these problems. That’s probably why customers seem to love the company so much. It seems that there is a great opportunity for HIMS. The current telehealth market size according to Precedence Research in 2022 is $48.3 billion.

Over the next 8 years, the size of the telehealth market is estimated to exceed $224 billion. This is more than 4.6 times the market’s expected growth over the next 8 years. As you can see, the market opportunity for Hims & Hers is truly huge.

Telehealth Market Size 2020 to 2030

Telehealth Market Size 2020 to 2030 (Precedence Investigation)

Finance

Now let’s take a look at the company’s finances.

In the second quarter of this year, the company had sales of $113.56 million, an increase of 87.1% YoY. That’s really extremely fast revenue growth. Gross margins were 76.8%, but the company lost $19.68 million in net income. Hims & Hers is currently losing but has a strong balance sheetso it’s financially perfectly fine in my opinion.

In order to grow so fast, a business usually has to spend no small amounts on marketing. In the second quarter of 2022 it was specifically $60.49 million. That represents about 53% of sales this quarter. It’s a pretty intimidating number at first, but we have to acknowledge the fact that once HIMS gets its customers, most choose a subscription plan for the drugs they buy and that’s why customers can stay with a certain plan for many years, so I think HIMS spending so much on S&M will pay off in the long run.

Balance-wise, as I mentioned earlier, it’s actually very solid. The company had $194.98 million in cash and $379.97 in total assets in the second quarter of 2022. HIMS currently has no long-term debt and only $60.91 in total liabilities. That means that if the company’s management wanted to, they could pay off all of the company’s liabilities tomorrow, and Hims & Hers would still have $134 million in cash. The company has a very strong balance sheet. HIMS has $319 million in total capital, and at the current market cap of $905 million, P/E is only 2.8x, which is really low. The current ratio stands at 4.14x and overall HIMS appears to be in good financial shape.

His and hers and growth

Now let’s see how fast the company has grown in recent years and what strategies it will use to continue growing. From FY2018 to FY2021, HIMS grew at a CAGR of 117%. Growth is not expected to pick up as fast in 2022 as expected sales growth this year is 76.5%. In the second quarter of 2022, the company had 817k subscriptions, which represents a growth of 80% year-on-year.

The company will use 4 main strategies to continue to grow rapidly. The first is to keep attracting more customers. The simplicity and financial readiness of the company’s platform attract many customers, and HIMS wants to continue to improve its platform to attract other customers.

As an additional strategy, there is growth within the existing customer base. HIMS has relatively young clients, the majority of the company’s clients are millennials. Because young HIMS clients are currently gradually aging, they are likely to experience health problems as they age. HIMS intends to grow with customers and wants to gradually find solutions to these future problems, in the form of new drugs and treatments.

As another strategy for the growth of the company, there is the expansion of the category towards new chronic conditions. According to the Centers for Disease Control and Prevention, 6 out of 10 people in the United States currently suffer from a chronic condition and four out of ten people suffer from two or more chronic conditions. This is, for example, sleep disorders, infertility, weight loss, diabetes and more, which represent a great opportunity for the growth of Hims & Hers.

As an additional opportunity for growth, expansion into new geographical areas is proposed. Currently, Hims & Hers is only in the United States and the United Kingdom, where the platform was launched in 2021. The company plans to expand to countries like China, India, Japan, Germany, and many others. Expansion into new geographic areas is, in my opinion, a great opportunity for the company. In general, Hims & Hers has many opportunities to continue growing.

subscriptions

Subscriptions (Hims Q2 2022 Investor Presentation)

Pit

Let’s take a look at Hims & Hers’ competitive advantage. The moat of the company is that the entire healing process is carried out from the comfort of the client’s home. This saves the customer a lot of time. In general, HIMS is much more affordable than most doctors. The company also has a very high SPL of 65 compared to the average healthcare provider who has an average NPS of 9. Hims & Hers also has 2 apps. First named “hims” is the 20th most popular app in the medical category on the App Store where it has 4.8 out of 5 stars and over 5,300 ratings there. The second called “hers” also has 4.8 out of 5 stars and more than 540 ratings.

In general, these applications are very popular among the company. In my opinion, the company also has a moat of network effects. HIMS is over 13 retail partners including target (TGT), To turn (rvlv), Walgreens (WBA), Amazon (AMZN), CVS (CVS), Walmart (WMT), and many more. Customer viewing of Hims & Hers products at these large retailers only continues to increase brand awareness of Hims & Hers. The company also has more than 7 health care partners. Personally, I think the HIMS moat is currently strong.

Valuation

Now, I’d like to focus on the current valuation of the company, because I think it’s really cheap right now. At the company’s all-time high in February 2021, HIMS was trading at 36x EV/Revenue. A year and a half later, the company is trading at a ludicrous EV/Revenue multiple of 1.9x. That’s quite a jump, in such a short space of time. The price/gross profit is currently only 3.2x.

Thanks to the expected rapid growth in sales, HIMS is currently trading at NTM EV/Revenue of 1.3x. That is very cheap indeed. HIMS is one of the cheapest and fastest growing companies I know of right now. The company’s shares can multiply from their current price and, in my opinion, still would not be very expensive.

That’s what attracts me so much about HIMS. By 2025, the company is likely to become profitable as expected by analysts and this is likely to pique the interest of many investors in the company as many of them are not looking for unprofitable companies due to the current macroeconomic situation. In general, in my opinion, HIMS valuation is very cheap at the moment.

Frame
Data by YGraphics

risks

Of course, Hims & Hers has several risks to consider before you buy. The first is the current history of unprofitability of the company already mentioned. This always represents a risk, especially in the current macroeconomic situation. However, thanks to the company’s strong balance sheet, I believe this risk is greatly reduced.

Currently, the biggest risk for Hims & Hers is competition. While HIMS does not currently have a competitor that does exactly what HIMS does, the company does have many competitors in the telehealth industry. Personally, I think that the company is dealing well with the competition so far, but it is necessary to monitor whether this will continue to be the case in the future and that the administration will continue to improve its platform.

These are the two main risks that Hims & Hers currently has and investors should be aware of and monitor them closely going forward.

conclusion

Hims & Hers is a high-growth company with a platform that customers seem to love. HIMS valuation is currently very cheap and the company has a very strong balance sheet. The management of the company has done a great job in recent years and, in my opinion, the market opportunity that the company has is enormous.

Despite some risks, I believe that if management lives up to current expectations, HIMS can deliver strong returns to long-term investors, possibly even in the hundreds of percent.

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