Most investors would look at an earnings announcement as a past event, connecting the current price action in the stock and reacting to the results as something that cannot be taken advantage of, thinking that it is now too late to get into action. This might be the case for shares of Hims & Hers Health Inc. (NYSE: HIMS), as the stock rallied by over 6% on Wednesday after the company reported its quarterly earnings.
Even though this is one of the company's best days this year, there are signs within the report that make Hims & Hers stock a Buy on Wednesday, even after the earnings reaction. Most of these reasons are found in the company’s fundamentals, but it doesn’t end there. Industry trends will offer investors a preferred way to cushion what might come to the economy in the near future.
If the threats of inflation end up becoming a reality for the United States, judging by how assets like the iShares 20+ Year Treasury Bond ETF (NASDAQ: NASDAQ:TLT) behave against stock indexes like the iShares Russell 2000 ETF (NYSEARCA: IWM), diverging in the ways that it historically does when inflation is expected to rise. By operating in the healthcare sector, Hims & Hers stock offers safety to the markets, along with the high margin nature of the technology space.
All Key Performance Indicators Running Hot for Hims & Hers Stock
While a 6% rally on Wednesday might seem bullish enough, it doesn't come close to what should be compared to the growth rates seen in the company's key performance indicators (KPIs). Starting with revenue, Hims & Hers reported a massive jump to $401.6 million for the quarter, a boost of 77% over the same quarter last year.
User growth and, more importantly, user monetization drives the company's revenue. So, looking at users for Him & Hers, investors will see the company reaching up to 2 million users, pushing for another double-digit growth rate of as high as 44% in the year.
However, user growth would be nothing without the proper monetization system to get these users to change the company's bottom line. Hims & Hers has no issue with this, as they reported up to $67 of average online revenue per subscriber, up from $54 in the same quarter last year, translating into a 24% jump over the year.
Investors should get excited about Hims & Hers' business model here. As it depends mostly on subscriptions, analysts can better project future financials as subscriptions are more stable and predictable, which is typical of the healthcare sector. But here is where the benefits of operating as a technology platform come into play.
Thanks to its operating model, Hims & Hers stock has a gross profit margin of up to 80%, which is above the industry average. These high margins, coupled with double-digit revenue and user growth, enable management to retain more of the company's capital for reinvestment into further growth.
That's the future assumption. However, the present benefits from these trends are reflected in the company's operating cash flows, which grew to a high of $85.3 million for the quarter, a 238% jump from the $25.2 million generated during the same quarter last year.
All of this would translate into one of the metrics that investors tend to care about the most: earnings per share (EPS). Compared to a net loss per share of $0.04 for the same quarter last year, Hims & her stock delivered up to $0.35 in EPS this quarter, an ump that is a fraction of the 6% rally that came as a reaction to the results.
Wall Street’s Bullish Take on Hims & Hers Stock: What the Future Holds
Starting with the recent Wall Street analyst sentiment, investors can see eight analysts pushing for a Buy rating in Hims & Hers stock, but the price target is what matters here for future guidance. Those at Canaccord Genuity Group Inc (TSX:CF) decided to place a $28 a share price target for the stock, meaning they see up to 32% more upside from Wednesday's price.
Of course, these valuations don’t reflect the company's new results yet, nor do they take into account the potential EPS growth that might boost the stock’s value in the future. However, some institutional buyers decided to take this view ahead of time.
Buyers from Principal Financial Group (NASDAQ:PFG) decided to boost their holdings in Hims & Hers stock by as much as 102% as of October 2024, brought their net position to a high of $5.4 million on Wednesday. This sends a strong confidence message for retail investors to consider today.
The last gauge can be taken from Hims & Hers stock’s valuation, compared to the rest of the sector. On a price-to-book (P/B) basis, Hims & Hers stock trades at a high 12.9x multiple, significantly above the medical sector’s average of 4.7x on Wednesday.
Some may call this expensive and overextended, but the reality is that markets will overpay for stocks they believe can outperform in the near future, and that belief is justified by the growth rates seen in Hims & Hers' results on Wednesday.