This bear market has been brutal. Numerous stocks have fallen as much as 90%, and some might never recover. Consumer health company Hims & Hers Health (HIMS 2.65%) is 80% off its highs, which means it needs a fivefold increase from here just to get back to its former high.

That's a tall task, but the numbers say Hims & Hers may get there. Not only could Hims & Hers recapture its former peak, but investors could see the stock increase 10X from today's prices over the next five years. Here is the thinking behind that projection. Time to dive in.

The whole is greater than the sum of its parts

Hims & Hers is a digital healthcare company; you can go to its website or smartphone app and receive a consultation from a healthcare professional for many ailments and a prescription (if needed). Hims & Hers treats various conditions in sexual health, hair and skin care, mental health, and more. It also sells over-the-counter products like nutrition supplements and vitamins.

There isn't anything Hims & Hers does that's unique; it sells prescriptions that any pharmacy can sell, and it's far from being the only telehealth company out there. Yet, it's the total user experience that makes Hims & Hers stand out. The company's integrated parts bring patients together with its network of professionals. It self-fulfills its product orders, creating a smooth user experience that Hims & Hers has wrapped neatly in an appealing presentation. In other words, it's building a brand.

Hims & Hers has expanded into retail stores; the company has products in chains like Walmart, Walgreens, Target, and more. Again, Hims & Hers products aren't proprietary; for example, they sell Biotin gummies for hair health, which you can get virtually anywhere. But Hims & Hers has created brand appeal, for which it deserves credit.

Putting up big numbers

Consider the company's growth. Hims & Hers had roughly 250,000 subscribers when it went public in late 2020. At the end of June 2022, approximately 18 months later, the company had 817,000. Subscriptions may cross the one million mark next quarter, meaning the business quadrupled its subscription numbers in just two years.

Subscriptions create recurring revenue, which makes Hims & Hers' top line dependable as long as it retains its paying members. Membership growth is translating to revenue growth too, which has been above 80% in the first half of 2022.

The company's success makes the price action somewhat head-scratching; a business nearly quadruples its customer count in two years. Additionally, it's only burned through $50 million in cash over the past year, with another $194 million on the balance sheet and zero debt. The business is doing better than ever, but the stock has never been so low.

Achieving 10X returns

This disconnect in Hims & Hers stock can generate market-beating returns over the long term. Valuing the stock on its revenue using the price-to-sales (P/S) ratio, Hims & Hers has traded as high as 12 and down to nearly 2. A euphoric market last year resulted in a valuation that was probably too high, and the current valuation might now be too low since the market won't likely stay this pessimistic over the coming years.

The stock's average valuation will probably land between these extremes, so use a hypothetical P/S ratio of 5X for this example. Now, turn to what Hims & Hers might grow into over time. Revenue rose 87% year over year in the second quarter, but it will likely slow as the numbers get larger. Can Hims & Hers average 40% revenue growth over the next five years? It seems reasonably possible, given its success over the past couple of years.

Management is guiding 2022 revenue at $485 million; apply a 40% growth rate and calculate. This puts annual revenue at:

Year Revenue (projected)
2023 $679 million
2024 $950 million
2025 $1.3 billion
2026 $1.8 billion
2027 $2.6 billion

Data source: author's calculations.

Go back and apply that 5 times P/S valuation on the stock, and you get a market cap of $13 billion, roughly a 14-bagger from Hims & Hers' current $900 million market capitalization. Of course, there's no guarantee this will happen. Perhaps the brand loses popularity or never achieves the needed valuation to generate those returns.

But what seems reasonably sure is that Hims & Hers doesn't need to do that much to generate at least solid investment returns from its current price. That alone makes the stock a compelling investment idea worth considering.