A couple of years ago many companies took an untraditional route to the public markets. An investment vehicle called a special purpose acquisition company (SPAC) saw a resurgence in activity. SPACs are more colloquially referred to as "blank check companies," and represent an alternative way to go about an initial public offering (IPO).
Unfortunately for investors, many SPACs underperformed as the businesses were still highly speculative. As a result, sentiment around SPAC stocks soured as investors looked to recoup capital and deploy it elsewhere.
With that said, one SPAC has emerged on my radar as a potentially lucrative opportunity. A telemedicine company called Hims & Hers Health (HIMS 1.87%) is trading more than 60% below all-time highs. My thinking is that as investors moved away from SPAC stocks in droves, Hims & Hers Health was forgotten. Let's dig into the company and analyze its performance. You might find that its growth prospects and budding operation deserve a little more attention.
What is Hims & Hers Health?
Hims & Hers Health is a telemedicine company that allows users to connect with doctors for a number of different medical needs. The company also sells a variety of wellness products related to hair and skin care. Unlike a traditional visit to the doctor, Hims & Hers Health employs a unique subscription model for its users. Upon filling out an online intake form or connecting with one of the company's providers, customers have the option to choose a subscription level for refills related to their treatment.
Image source: Getty Images.
What is the outlook for Hims & Hers?
On the surface, it might seem like Hims & Hers is a bit of a commoditized business. The telemedicine industry is crowded and healthcare in general is extremely competitive. However, I am not worried about the company's ability to disrupt the traditional world of healthcare.
Per the company's third-quarter earnings release, Hims & Hers Health increased its subscriber count by 56% year over year, ending the quarter with 1.4 million members.
Image source: Hims & Hers Health Q3 2023 investor presentation.
One of the more encouraging figures from the Q3 report was that not only is Hims & Hers Health growing subscribers, but the company's average order volume (AOV) is also growing. For the period ended Sept. 30, the average order for a subscriber increased 19% year over year to $99.
The combination of increasing subscribers and expanding order sizes has helped the company consistently grow its revenue and trim losses. Through the first nine months of 2023, the company's total revenue has grown 74% year over year. Meanwhile, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) has swung from a loss of $20 million last year to positive $30 million through September.
If this weren't enough to get you a little curious about the operation, perhaps the company's latest announcement will be pique your interest. Just this week, the company announced that it is entering the weight loss market. Given the incredible rise in popularity around treatments such as Ozempic, Wegovy, and Mounjaro, this move makes a ton of sense. Moreover, given that pharmaceutical companies are hard-pressed to fulfill demand for treatments such as Ozempic and Mounjaro, Hims & Hers Health's alternative products may be coming at just the right time.
Should you buy Hims & Hers Health stock?
HIMS Revenue Estimates for Next Fiscal Year data by YCharts
The chart above illustrates the consensus estimate for Hims & Hers Health's revenue in 2024. The $1.1 billion forecast implies 27% top-line growth at the midpoint of the company's 2023 revenue estimate. I think this is incredibly conservative. Given that the company is set to grow revenue by roughly 65% in 2023 and operate at positive EBITDA margins, it's hard to imagine a scenario in which growth plummets to the implied 27%. For this to be the case, the company would have to experience some abnormally high subscriber churn, or users would have to lower their average order size by a meaningful amount. I simply do not see that happening. But to be clear, investors should understand that companies do not grow in the high double-digits in perpetuity. Eventually, a business reaches some form of maturity and growth can plateau.
As of the time of this article, Hims & Hers Health stock trades at a price-to-sales (P/S) multiple of 2.3. To put this into context, this is 60% below its all-time highs and hovering around its lowest levels ever. While the acceleration in revenue and EBITDA are an encouraging sign, perhaps even better is the company's reinvestment of capital into other growth areas such as weight loss supplements. Given the rock-bottom valuation, I think now looks like a terrific opportunity to go bargain hunting and scoop up some shares in this healthcare disruptor.
