Telehealth and consumer products company Hims & Hers (HIMS 0.08%) is down more than 80% from its high since going public as a former special purpose acquisition company (SPAC) stock.
Stocks falling this far typically come with extremely negative investor sentiment; they look more like stocks on the verge of bankruptcy than up-and-comers.
But the market might have it all wrong. Here is why Hims & Hers has the staying power to get through the current bear market and a potential recession, and could handsomely reward investors over time.
Consumers are still flocking to Hims & Hers
Hims & Hers is a telehealth platform by which people can consult with a medical professional through video or text. Doctors can prescribe pharmaceutical and over-the-counter products as needed. The company also sells vitamins and other health supplements through retail partnerships with various stores. It went public via a merger with a SPAC in late 2020.
Some might assume that a telehealth company like Hims & Hers would see its business decline as lockdowns went away over the past year. However, that's not the case; Hims & Hers had 391,000 subscribing customers when the company reported 2021 first-quarter earnings in May 2021. The stock traded at $10 per share at the time.
Hims & Hers reported its most recent quarter, the 2022 first quarter, with 710,000 subscribers, an 82% jump over the prior year. Although, the stock now trades at roughly $4 per share, down 60% from a year ago. Investors can't help what the stock price does, but it's clear that Hims & Hers is still attracting new customers, which hasn't yet shown signs of fading.
Enough cash to endure a recession
Many newer companies struggle in a recession when growth slows and raising cash is harder. Hims & Hers has maintained strong growth since late 2020, but fears over a recession are understandable.
Fortunately, the company has strong financials that should see it through to the other side. You can see below how the company has just over $200 million in cash on the balance sheet and no debt. Free cash flow was negative $20 million last quarter, meaning that if the company ran at this pace, it would have enough cash to last for more than two years before running out of money.
HIMS cash and short term investments (quarterly). Data by YCharts.
Sure, growth could drop if a recession causes some customers to cut back on their subscription spending, but Hims & Hers seems rock-solid from a survivability standpoint. It would take a dramatic collapse in the business for the company to come into severe financial distress.
Some customers buy supplements through Hims & Hers, but many also purchase prescription drugs, which I'd argue are far less likely to be cut from the household budget. Therefore, I don't think a collapse in demand for Hims & Hers products is expected; time will tell for sure.
The long-term upside is plentiful
Nobody can know what the market will do in the short term or how long a recession would last if one happens. The stock's valuation has become very depressed; the price-to-sales ratio (P/S) has fallen to the low single digits. Meanwhile, Hims & Hers grew revenue 94% year over year in the first quarter of 2022.
HIMS PS ratio. Data by YCharts.
The company now has a market cap of just under $900 million; Hims & Hers doesn't need to become a Fortune 100 company to be a compelling investment opportunity. Nearly doubling revenue last quarter, the company had $320 million in sales over the past four quarters.
It seems plausible that Hims & Hers could cross $1 billion in sales over the next five years, which would set the stock up for solid investment returns, even if the P/S doesn't go meaningfully higher. Nothing is risk-free, but Hims & Hers offers attractive potential for gains on a stock that Wall Street is pricing for failure.
