After merging with special purpose acquisition company (SPAC) Oaktree Acquisition, the newly named Hims & Hers Health (NYSE:HIMS) looks to be a winner right out of the gate. Why? For starters, HIMS stock is fast growing in an already rapidly expanding industry.
Right now, the rise of the telehealth industry is one of the more prevalent megatrends in motion. That alone makes plays in the space interesting opportunities. But, when you take into account that Hims & Hers’ unique business model — namely, its focus on millenials — this may be one of the best picks in the industry to own.
And that’s even as interest in HIMS stock has fizzed out. Shares in its SPAC predecessor rallied as much as 80% in the weeks leading up to the close of the deal. Since the transaction’s completion, though, shares have slid, from $16.38 per share to around $14.43.
This recent pullback provides you with a great opportunity to get in at a reasonable price. This company has strong long-term prospects. Investors should scoop the stock up — and ASAP.
Why HIMS Stock Is a Great Play on Telemedicine
True, this isn’t the only telehealth stock out there. In fact, more established players already hold significant market share in this space. But, while its still an early-stage company, Hims & Hers has a solid pathway to become a leader in this fast-growing industry.
How so? Firstly, although it was only started in 2017, the company already offers a wide breadth of telehealth services. Starting off by providing services tailored specifically to men’s health needs — hence the “Hims” brand — the company quickly expanded to offering health and wellness solutions for women. But that’s not all. In addition, the company also offers a wide variety of other healthcare products and services. These include skincare and anti-aging solutions, mental health services and even Covid-19 testing kits.
Secondly, HIMS has an advantage in its focus on the millennial market. Other telehealth companies are going after all generational cohorts. Conversely, Hims & Hers sees potential building up its market share in this still-young demographic, with the oldest millennials turning 40 this year and the youngest ones at 25 years old.
In my opinion, the company is smart to pursue this market. As millennials progress in age, they aren’t going to be satisfied with the “old school” healthcare model. So, HIMS has the potential to capture the market now and hold onto it in the coming decades.
Finally, the company is growing at a rapid clip. Like I said above, it only set up shop in 2017. However, within a year, it hit $27 million in sales. Revenues climbed to $83 million in 2019 and are now projected to be $138 million for 2020. And that’s just the start.
So, with its high growth in mind, buying HIMS stock now — even at today’s rich valuation — looks like a worthwhile risk-return proposition.
With High Growth Ahead, Don’t Worry About Valuation
One factor that may have some investors skittish about HIMS stock is that rich valuation. Following its SPAC merger, the company is worth $1.6 billion. That’s high, relative to its current level of sales.
However, this is just another situation where you don’t want to lose out by missing the forest for the trees. That is to say, relative to current fundamentals, Hims & Hers looks fully priced, given both its high implied price-to-sales ratio and the fact its yet to reach profitability. But, taking a look at future growth, the stock at today’s prices may wind up being a steal in hindsight.
Based on projections provided in a recent investor presentation, the company sees its top line continuing to climb in the coming years. Revenue is projected to hit $179 million in 2021 and $233 million in 2022 (Page 35). And I wouldn’t assume growth is set to stall out after that.
After all, Hims & Hers is going after a specific but massive market. Per its own estimates, this could eventually be a $500 billion total addressable market. And, with its plans to expand into other “telehealth friendly” markets, international expansion is on the table as well.
Put it all together and it’s clear this isn’t a growth story to skip out on because of valuation concerns. Splitting hairs now could lead to regret down the road.
Seize the Opportunity with Hims & Hers Stock
Unlike some other recently closed SPAC mergers, investors aren’t too excited about this opportunity. But, don’t forget telehealth is yet another megatrend set to play out in the coming decade.
Smartly going after the millennial market — with some of those potential customers on the cusp of their 40s — the company’s runway is extensive. Yes, its valuation may look high today. However, considering this name’s tremendous growth prospects, the premium is more than worth it.
In short, take advantage of the recent pullback. Buy HIMS stock.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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