Hims & Hers Earnings Could Be a Game Changer—What to Do Now

Key Points

• After a massive 500% run over the past 12 months, shares of Hims & Hers stock might have another trick saved up before earnings announcements.
• Based on fundamental data from the previous quarter, this business is clearly firing on all cylinders.
• Momentum and institutional buyers could trigger what's known as a short squeeze in Hims & Hers stock.

There are a few stocks that come along every once in a while, arriving to change the way an old-fashioned industry works and operates. When investors get lucky enough to find one of them, it can typically bring on life-changing returns, even retiring them from active work if they choose to go that route. With this in mind, here are the two main ingredients investors need to check off their list in the search for such an opportunity.

First is technology implementation, which changes the way an industry works. One example is how Uber changed how ridesharing works or how Zillow expedited the housing market’s sales process. The second factor, preferable for an investment, is a low-cost subscription business model, giving ample room for management to navigate market cycles and still be able to count on stable and predictable cash flows for reinvestment back into growth.

Today, shares of Hims & Hers Health Inc. NYSE: HIMS fit that description, getting ahead of the medical sector through technology and creating an entirely new space of telehealth as a result as well. More than that, the stock has recently gone on an impressive run of up to 502% in just 12 months, confirming the fact that this could be one of those “retire early” stocks if played right. The question is, will the stock still be able to deliver these returns moving forward? Expectations for upcoming earnings might answer that.

Controversy Against the Leader

When investors compare the momentum and sentiment seen in Hims & Hers stock recently against another healthcare giant like Eli Lilly Co. NYSE: LLY, it becomes evident that the former is leaving everyone else behind. Just like in any other industry, when the up-and-comer starts to breathe down the neck of the leaders, controversy will abound.

The latest round involved accusations that the company’s weight loss products (GLP-1s) are not FDA-approved, and those accusations would be right due to a simple loophole. The compounds that Hims & Hers make are not generic but rather compound medicines that have been in use for decades.

Now investors can see how these allegations might be a targeted attack on Hims & Hers as it threatens to take market share from the big names, but here’s why investors shouldn’t worry. Hims & Hers was already successful even before introducing its weight loss product line, and there are some numbers to back that up.

Hims & Hers Is Firing on All Cylinders

According to the company’s latest quarterly earnings, which reported a net 77% growth in revenue over the past 12 months to reach $401.6 million, weight loss products only got up to $100 million worth of this net revenue. That would be approximately 25% of the whole, which is significant but not terminal.

It is not terminal, meaning that 100% of this revenue generated would have to be recalled due to a product failure or a complete discontinuation of their weight loss products, which is highly unlikely. Investors should focus on other metrics pertaining to the rest of the 75% of revenue coming into Hims & Hers.

With that in mind, a strong key performance indicator (KPI) can be measured through user growth and profitability. As of the latest quarter, Hims & Hers reported up to 2 million subscribers, a 44% jump over the previous year, which shows the quick adoption rate this company has achieved in the market.

More than that, the monthly average revenue per subscriber rose to $67, or 24% higher than last year, meaning Hims & Hers not only has the ability to keep taking on market share and growing its user base but also showcases enough pricing power to keep delivering compounded returns in the future.

This performance would translate to a free cash flow (operating cash flow minus capital expenditures) of up to $79.4 million, a 312% jump over the previous year. This is important because it allows businesses to keep reinvesting back into growth initiatives and keep compounding value for shareholders.

Is HIMS Still a Buy?

Some investors might be weary of buying into Hims & Hers for two reasons. First, the stock has gone on an incredible run recently, leaving some to wait for a potential discount. Second, earnings are right around the corner, and the possibility of any good news being already priced in could weigh a decision to buy.

However, there are two factors investors should carry with them into earnings. One is the fact that the company’s short interest still represents over 30% of the float, meaning any more up days could begin to trigger what’s known as a short squeeze, where short sellers are forced to close their losing positions (thereby buying back the stock in bulk).

The other factor is that up to $701 million worth of Hims & Hers stock was purchased by institutional investors over the previous quarter, another bullish sign for investors to consider, lest they get left behind on a potential run on earnings. However, for those still worried about buying at the highs, a pullback toward the $58.50 to $60.0 level shows reasonable support, making for a good entry.