Share prices of direct-to-consumer healthcare company Hims & Hers Health (HIMS 8.32%) started hot in 2023, doubling from $6 per share to $12. But the stock has lost momentum, drifting backward since peaking, and is now flat for the year. Was the early success a fluke? Or is it just the market testing investors' conviction in the name?

Here is why this stock is an opportunity you don't want to miss.

Hims & Hers is cutting prices and lifting margins

Hims & Hers is a digital healthcare platform where patients can consult professionals for several conditions and receive personalized scripts sent to their homes. Hims & Hers is a very young corporation; the business was founded in 2017. Still, it's grown subscribers to 1.3 million, and its total in the second quarter was a 74% year-over-year increase.

CEO Andrew Dudum recently spoke at an investing conference and was asked about the company's pricing on long-term plans, which it reduced. Dudum explained that the company has grown enough to become more cost-efficient and is passing savings down to customers.

He noted that gross margins were 82% in Q2, up five percentage points year-over-year, despite the company's price cuts. Lower prices could help retain business and bring in new customers. The higher margins can help the business turn a profit sooner without sacrificing its growth.

Financial flexibility with profits on the way

Hims & Hers is operating from a solid financial position as it continues expanding and growing its subscriber base. The business turned free cash flow positive this year, and net income is not far behind.

The company is creating cash flow despite spending about half its revenue on sales and marketing. Admittedly, that's a high number and something investors should watch over the long term.

But spending on growth makes sense right now. Management repeatedly cited that the amount it spends to get an average new customer is paid back within one year. The company is growing a subscriber base that produces recurring revenue over the long term.

HIMS Revenue (TTM) Chart

HIMS Revenue (TTM) data by YCharts

There shouldn't be a sense of urgency or panic among investors for now; Hims & Hers has $193 million in cash on its balance sheet and no debt, and cash flow should only grow now that it's turned positive.

Hims & Hers can still expand into plenty of new categories; it announced entry into heart health earlier this year, and weight management remains an obvious opportunity that is likely a matter of time.

Valuation is a low hurdle for significant investment returns

Healthcare is a competitive industry, and it seems like the market has been pessimistic toward digital healthcare stocks. But Hims & Hers might be the metaphorical baby thrown out with the bathwater.

Look at how the stock compares with Teladoc below. Like Hims & Hers, Teladoc offers telehealth services, though it's more aimed at providers than consumers. The stocks trade at nearly identical valuations using their enterprise value-to-sales ratio.

HIMS EV to Revenues (Forward) Chart

HIMS EV to Revenues (Forward) data by YCharts

But Hims & Hers is not only growing its revenue at a much faster rate than Teladoc, but it's also achieving higher profit margins. One could reasonably argue that Hims & Hers deserves a higher valuation than Teladoc.

For the sake of argument, imagine that the Hims & Hers stock never trades at a higher valuation. The business could grow sales by 60% this year. Unless growth implodes, sales could continue growing for years to come.

That's a very low bar to create investment returns. It's impossible to put an exact number on what those returns will look like right now, but it seems fair to at least point to the stock as a situation where there's more potential upside than downside moving forward.

That looks like a situation worth looking into.