Long-term investing is the key to sustainable returns in the stock market because it smooths out near-term volatility and gives a company time to deliver on its growth or profit potential. This strategy can be particularly useful for smaller growth stocks like Hims & Hers (HIMS 1.87%).
Let's discuss what the next five years could hold for this unique company as it scales its business model and swings toward sustainable profitability.
What is Hims & Hers?
Founded in 2017, Hims & Hers is a telemedicine company that sells prescription and over-the-counter healthcare products online. It built its brand by focusing on sensitive topics like sexual health, mental health, and hair loss, which people might be uncomfortable discussing in a traditional face-to-face healthcare setting.
Shares went public by merging with a special purpose acquisition company (SPAC) in early 2021 -- just in time to benefit from the pandemic era's stay-at-home boom. Hims & Hers stock quickly climbed to its all-time high of $24.46 in February that same year. While the stock is now down by around 65% from that peak, now could be the time for investors to bet on its long-term potential in a fast-growing industry.
Operational results are encouraging
Telehealth is already revolutionizing the way people interact with healthcare services. According to analysts at Markets and Markets, the opportunity could expand at a compound annual growth rate (CAGR) of 23.2% to $285.7 billion by 2028 as technology improves, the population ages, and more people become aware of such offerings. The trend is already having an effect on Hims & Hers' operations.
Third-quarter revenue jumped 57% year over year to $226.7 million after a similar increase in subscriber count. And while Hims & Hers isn't profitable yet according to generally accepted accounting principles (GAAP), things are moving in the right direction. The company's net loss shrank 60% to $7.6 million in the quarter, and it generated adjusted EBITDA of $12.3 after adding back non-cash charges like depreciation and stock-based compensation.
New verticals could power the next leg of growth
In addition to the telehealth industry's overall expansion, Hims & Hers can drive continued growth by expanding outside its current niche to serve additional healthcare needs like obesity and cardiovascular care. And it recently launched a weight loss program focused on using vitamins and widely available generic medications.
Image source: Getty Images.
The company is also offering a new artificial intelligence (AI)-based service called MedMatch designed to help healthcare providers identify well-suited treatments for patients based on the company's vast trove of relevant data -- gleaned from its anonymized user visits, demographics, treatments, and patient outcomes. These efforts highlight Hims & Hers' ability to continue innovating in the healthcare sector by adapting new types of technologies. Over the next five years, these new businesses could become key growth engines.
It's not too late to buy
Hims & Hers is still a relatively small company with a market cap of $1.8 billion. From a valuation perspective, it is surprisingly cheap with a price-to-sales (P/S) multiple of just 2.3 compared to the S&P 500 average of 2.6. This price tag seems out of step with the company's high growth and its potential to quickly scale into profitability, and shares could rise substantially over the next five years and beyond.
