It's a six-point argument that stocks are a great opportunity worth grabbing right now.
Telemedicine company Hims & Hers Health (HIMS -4.88%) recently found itself embroiled in controversy after a polarizing social media post by the company's CEO sparked debate. The stock took a bit of a hit as a result, but the company then announced its first-quarter results amidst the turmoil, giving bulls much to cheer about.
While it's often a bad idea for companies to get too close to political discussions, there are good reasons to help them overcome their recent stumbles and become a good long-term investment.
Here are six potential reasons to buy Hims & Hers stock right now.
1. Hims & Hers continues to innovate its product range
Hims & Hers is a telemedicine company that allows patients to consult professional healthcare providers digitally and have prescribed treatments shipped to patients' homes. It's not a unique business model, but the company's execution excellence has driven its success even as potential competitors in non-traditional healthcare like Walmart have challenged and later abandoned the business.
Healthcare is highly flexible, which opens up many product innovation opportunities for executives. In its latest report, Hims & Hers has teased products that will be released in the coming weeks. Hims & Hers already sells medicines to treat a variety of conditions and ailments, from sexual health to hair loss, but the company's product offering will expand further, with the potential to appeal to new customers and cross-sell to existing users. It seems that there is.
2. Exceeding expectations for 14 consecutive quarters
Aggressive product expansion has helped the company grow faster than analysts could model. Hims & Hers' first-quarter profit covers its 14th quarter as a publicly traded company and marks the 14th consecutive quarter in which the company's sales have exceeded analyst expectations. “Beat and raise” has become the norm, and management once again raised its full-year earnings outlook. Hims & Hers now expects full-year 2024 sales of $1.2 billion to $1.23 billion, up from previous expectations of $1.17 billion to $1.2 billion.
3. Hims & Hers is well profitable on a GAAP basis.
More importantly, growth does not come at the expense of profits. Hims & Hers has achieved an excellent gross margin of 82%, which has allowed the company to achieve its GAAP margin while maintaining revenue growth of over 40%. This is his second consecutive quarter of GAAP earnings for the company, which should mean revenue growth outpaces expenses and revenue starts to turn over faster.
The company has zero debt and the $200 million in cash on its balance sheet is a bonus. Management continues to invest heavily in growth and may also repurchase shares to support further earnings growth.
4. Membership continues to increase
The constant growth in subscriber numbers shows how appealing the company's brand is and resonates with patients. Membership in the first quarter was up 41% year-over-year, and at 1.7 million members, we're well on our way to growing, and it's great to maintain this kind of growth.
Image source: Hims & Hers Health
As you can see above, Hims is focused on growing its subscribers. There is little increase in revenue per user. I don't think that's a bad thing at this point. It is likely that Hims continues to set aggressive prices in order to take market share.
5. Hims & Hers has a large addressable market.
To support this point, I'd like to mention something that CEO Andrew Dudum said on the earnings call. Dudum has hinted at the platform's growth potential before, but this time he specifically focused on long-term goals, citing the potential for the platform to have tens of millions of subscribers. Even 10 million subscribers would be more than five times the current number of subscribers.
This revolves around the company's core care category, which it previously focused on.
sexual health. Male dermatology. Women's dermatology. mental health. Weight loss.
That's the magic that makes Hims & Hers a brand. This allows management to reach multiple end markets under the same name. He has two ways to grow. He can treat large numbers of people for one condition or disease, or he can treat one patient for multiple diseases. All-in-one healthcare He is becoming an ecosystem, where you do not need to see one doctor for hair loss and another for sexual health.
6. Hims & Hers is a bargain.
As the market bubbled in favor of growth stocks, we see stocks trading at a fraction of their share price. I'm not saying this stock deserves to trade at more than 20 times enterprise value. Still, the stock is trading at near all-time low valuations, even though the company's financials are clearly in better shape than ever.
Converting HIMS EV to Revenue Data with YCharts
The stock still has a market cap of just $2.6 billion. Suppose that tens of millions of subscribers are not expected, and the total will only reach 1 million. This represents more than a five-fold increase in his business, not even considering the stock's valuation. This doesn't come out of the blue, as growth shows no signs of slowing and the company's success story has now spanned four years.
Investors have a true potential compounder trading near all-time lows despite strong performance. It seems like a quarter like the one investors just saw will eventually force stocks higher. It might be a good idea to buy stocks before that happens.
Justin Pope holds a position at Hims & Hers Health. The Motley Fool has a position in and recommends Walmart. The Motley Fool has a disclosure policy.
