If you're looking for volatile stocks that can deliver dramatic gains in a short amount of time, there are some names in the healthcare sector that Wall Street thinks you should look at.
These stocks are way down from their 12-month highs, but the analysts who follow them have been telling investors to expect strong recoveries by raising their price targets to levels that imply they can more than double an initial investment.
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Before you chase lofty price targets, remember that the investment bank analysts who set high targets will simply adjust them downward if things don't work out. Here are some things you should know about these stocks before risking any of your own hard-earned money.
Hims & Hers Health
Shares of Hims & Hers Health (HIMS 1.62%) have fallen about 50% from the peak they set this spring, but Wall Street predicts a rebound. The average price target on this niche telehealth provider implies a 107% gain ahead.
NYSE: HIMS
Key Data Points
Hims & Hers Health operates a niche telehealth platform its members use to access prescription and non-prescription treatments for conditions related to sexual health, hair loss, dermatology, and mental health. It offers products tailored to patients' individual needs on a subscription basis, and all that recurring revenue is starting to add up.
Analysts who stuck their necks out to suggest this stock can more than double are encouraged by second-quarter sales that rocketed 83% higher year over year to $207.9 million. It was heaps of new subscribers that drove sales growth. The company's subscriber count climbed 74% year over year to 1.3 million.
Hims & Hers Health is still losing money, but its bottom line is rapidly approaching positive territory. Its second-quarter net loss narrowed to just $7.2 million from $19.7 million a year earlier.
Hims & Hers Health shares have been trading for 36.2 times forward-looking earnings estimates. With lots of recurring revenue from a rapidly growing subscriber base and plenty of prospective conditions to cover, the market's expectations could be too low. Following Wall Street's advice and adding some shares of this stock to a well-diversified portfolio right now probably isn't a bad idea.
Ginkgo Bioworks
Ginkgo Bioworks (DNA +0.31%) stock has fallen around 30% from its peak this summer. The analysts who follow the biotechnology company think it can recover and keep climbing. The consensus price target on Ginkgo suggests it can rocket 127% higher from recent prices over the next 12 months.
NYSE: DNA
Key Data Points
A growing variety of new clients use Ginkgo's genetic-engineering platform to develop new microorganisms that can produce valuable end products by consuming inexpensive feedstocks. For example, Braskem, a chemicals company, hired Ginkgo to program a new strain of E. coli that easily converts leftover sugarcane pulp into ethylene glycol, a key ingredient used to produce many plastic products.
Wall Street's bullish for Ginkgo because it's been signing up heaps of new customers. Over the past 12 months, the company has started 69 new programs, bringing the total number of active programs to 139.
Ginkgo is still losing money because an important component of its investing thesis hasn't materialized. The up-front service fees Ginkgo charges aren't enough to make ends meet, and the company recorded an adjusted loss of $75 million in the second quarter before subtracting interest, taxes, depreciation, and amortization.
Ginkgo only looks like an attractive investment if we can assume its clients will use their new custom-engineered organisms to generate heaps of revenue. That's because it typically stands to earn milestone payments and royalties related to its clients' commercial sales.
Unfortunately, it doesn't appear that many of Ginkgo's past clients have been using their Ginkgo-engineered organisms to generate significant sales. In the first half of 2023, the company reported just $2 million in downstream revenue, compared with $19 million in the previous year period. It's probably best to keep this risky stock on a watchlist at least until we see some downstream revenue growth.
