When it comes to the excitement that tech investors have for artificial intelligence stocks, the only thing that can match it is the excitement healthcare investors have about weight-loss stocks. Seemingly any healthcare company that gets involved with weight loss benefits from a surge in bullishness and enthusiasm. The more serious the effort, the more optimism there often is.
The latest company looking to capitalize on the weight-loss hype is Hims & Hers Health (HIMS 1.87%), which runs a telehealth business that sells prescription medication online. Already a growth machine, the company is launching a new business unit that could push its growth rate even higher.
Hims & Hers to launch a weight-loss business
On the company's second-quarter earnings call in August, management discussed plans for launching a new weight management category. It will be available by January, just in time for the company to benefit from people making New Year's resolutions, many of which are aimed at weight loss.
Hims & Hers says that it will utilize "personalized treatments" to help people manage metabolic disorders, insulin resistance, depression, and other factors that may be related to weight gain. But that doesn't mean that the company will be able to supply people with hard-to-find weight loss and diabetes drugs such as Wegovy and Ozempic, as the company says those "products likely will not be available at launch," citing shortages and other issues as near-term problems.
Management cautioned that it takes time for a new category to get going and that it can take 12 to 18 months before it starts generating significant revenue for the business. But when it does get going, it could be a massive opportunity for Hims & Hers. The global weight management market is growing at a compounded annual growth rate of around 10% and is projected to be worth nearly $300 billion in 2030, according to estimates from Grand View Research.
The company is targeting some high-opportunity areas
Hims & Hers business centers around sensitive areas such as erectile dysfunction, hair loss, sexually transmitted diseases, and others. There are many more growth opportunities the company is targeting in the future. Weight management is one area, as is pain management, fertility, and diabetes.
The company's focus is on underpenetrated opportunities where it can dominate and potentially carve out a niche for itself to take advantage of. It's a great strategy that may not only win market share easily but also gain the trust of patients in the process, who may go to Hims & Hers for other health-related issues.
Hims & Hers is already a growth machine
In the company's most recent earnings report, for the period ending June 30, Hims & Hers reported revenue of $207.9 million, which grew at a rate of 83% year over year. The bulk of the purchases (87%) come from the company's website or mobile application as online sales totaled $201.2 million, with the remainder coming from one of its wholesale partners.
Customers are spending more money with Hims & Hers, and they are also buying more often. In Q2, the average order value rose by 22% to $95. And the number of net orders also increased by 52%. The company is generating strong growth numbers even though its number of monthly subscribers only rose by 4%. This is perhaps a sign that customers now trust the business with more of their healthcare needs.
Hims & Hers has averaged an impressive growth rate in recent years, and with weight management opening up new opportunities for the business, it wouldn't be surprising to see the company continue with a high rate of growth (in excess of 60%) for the foreseeable future.
HIMS Revenue (Quarterly YoY Growth) data by YCharts
Is Hims & Hers a good stock to buy?
Hims & Hers is a fast-growing company, but one downside is that its operations aren't profitable. The good news is that the business is getting there. Last quarter, Hims & Hers incurred a loss of $7.2 million, which was less than half of the $19.7 million loss it posted in the prior-year period. Over the past six months, it has also generated positive operating cash flow of $26.3 million -- versus cash burn of $25.8 million in the same period last year. The company does appear to be going in the right direction.
The healthcare stock has a consensus analyst price target of $11.75, suggesting that it can rise by more than 65% in value. It wouldn't be surprising for the stock's value to go even higher than that if Hims & Hers can attract a lot of traffic through the launch of its weight-loss business and as it potentially starts to turn in profitable earnings numbers.
There's some risk with the business, but Hims & Hers does have the potential to be an incredibly good long-term investment to hang on to.
