In today's note, we will discuss Hims & Hers' Q3 2023 report, wherein the company delivered a solid beat across the board.
Rapid revenue growth combined with significant margin expansion is a powerful combination, and that's precisely what Hims & Hers is showcasing right now.
Given HIMS' strong business and weak stock performance, I am getting more bullish on the stock. Read on to learn more.
Hims and Hers is a curious case of Mr. Market's irrationality - the business fundamentals are improving every quarter, yet the stock keeps going lower despite being at depressed levels for months now. I like such situations (just like Peter Lynch does), and so, I continue to buy Hims & Hers as much as my portfolio allocation permits. Today, Hims & Hers is trading at ~1x EV/S, which, in my view, falls under the deep-value territory for a rapidly-growing business that commands robust gross margins and is very close to FCF breakeven. Hims & Hers has all the traits of a potential multi-bagger investment, and so, I rate Hims & Hers a generational buy at $3.4 per share (or $750M market cap).
While HIMS' stock has doubled since the publication of that report, a long-running streak of "quarterly beats and raises" means my conviction in Hims & Hers is higher than ever. In today's note, we will briefly review HIMS' Q3 2023 report, and re-evaluate its fair value & expected returns. Furthermore, I will provide an updated view of HIMS' technical chart. Let's dive right in!
Hims & Hers Q3 2023 Earnings Review
For Q3 2023, Hims & Hers once again defied Street expectations by delivering revenues of $226.7M [y/y revenue growth of $81.9M (+56.56%), q/q revenue growth of $18.8M (+9.04%)], powered by a re-acceleration in subscriber growth to +9.69% q/q [subscriber count rose to 1.426M, up 56% y/y].
Hims & Hers Q3 2023 Earnings Presentation
Back in Q2, Hims & Hers' management announced strategic pricing initiatives (cuts) on longer-duration subscription plans, which had the investor community concerned due to the potential negative impact on revenues and profitability. However, the strength in HIMS' key business metrics in Q3 should be enough to allay all those misplaced fears. In Q3, Hims & Hers' average order value [AOV] rose to $99 (up 19% y/y) with nearly 79.5% subscribers using a multi-month plan (vs. 77.6% in Q2 2023).
Hims & Hers Q3 2023 Earnings Presentation
More importantly, the negative impact of these pricing initiatives was more than offset by Hims & Hers serving ~80% of orders from its affiliated facilities (up from ~70% in Q2), with HIMS' gross margin hitting a record high of +82.6% in Q3 2023. Consequently, Hims & Hers' adj. EBITDA margin rose to +5.3% (adj. EBITDA: $12.3M), and net margin improved to -3.3% (net losses narrowing to -$7.2M).
Twitter
Hims & Hers Q3 2023 Earnings Presentation
With their cash flow generation improving rapidly [and the business projected to reach positive net income in H1 2024], HIMS' management has announced a $50M stock buyback along with the Q3 report that must be executed in the next two years:
Hims & Hers Investor Relations
Ideally, I prefer my early-stage businesses to invest in future sales growth over stock buybacks; however, given Hims & Hers' criminal undervaluation, I think this buyback announcement could catalyze a positive change in investor sentiment towards HIMS stock.
Once again, Hims & Hers demonstrated its ability to scale revenues whilst improving its margins and unit economics in Q3 2023. The only thing missing from the Hims & Hers story is evidence of a sustainable moat, and as of Q3, the company's leadership believes "Personalization" is that missing piece!
Hims & Hers Q3 2023 Earnings Presentation
Hims & Hers Q3 2023 Earnings Presentation
Management commentary:
This quarter marks a significant turning point for Hims & Hers, where step-change progress was made in transforming our company from an access-oriented company, towards a platform offering a personalized patient experience. The capabilities that we have spent years building allow us to offer unique and differentiated products across our current categories, as well as seamlessly enter new categories such as Cardiovascular Health and Weight Management. These are some of the most commonly occurring and emotionally resonant conditions, and by addressing them, we are one giant step closer towards having the ability to improve the life of every individual in the world.
- Andrew Dudum, co-founder and CEO
We are excited by the progress made this quarter, which we believe sets that foundation for long-term growth at an attractive margin profile through distinct competitive advantages. Our economic flywheel is clearly working. It has enabled us to strategically bring highly sought after personalized products to very attractive price points, and simultaneously expand margins. We believe this uniquely positions us for significant market share gains.
- Yemi Okupe, CFO
Along with the Q3 beat, HIMS' management provided strong guidance for Q4 and raised the full-year 2023 outlook despite facing a challenging macroeconomic environment. For Q4 2023, Hims & Hers is expected to report revenues of $243M-$248M (+45%-48% y/y growth) with adj. EBITDA of $14M-$17M (adj. EBITDA margin of 6-7%).
Hims & Hers Q3 2023 Earnings Presentation
For the full year, management now projects revenue and adj. EBITDA of $868M-$873M (+65%-66% y/y growth) and $43M-$46M, respectively. While Hims & Hers' management has committed to maintaining adj. EBITDA profitability going forward and teased positive net income by H1 2024, the company is still investing aggressively against its humongous opportunity set to improve customer experiences on its platform and to increase market share, revenues, and profits.
From a tech disruption standpoint, the healthcare market remains largely untapped, and Hims & Hers is just getting started on its journey of becoming the most trusted health & wellness brand in the US. While the capital allocation policy is shifting, Hims & Hers' management remains focused on reinvesting most of the profits back into the business in order to enhance the overall customer experience on its platform, in lieu of its long-term customer retention target of 85%. Going forward, management wants to increase customer engagement and product adoption by leveraging customer insights generated across their proprietary tech platform to deliver more refined and personalized product offerings to consumers. And they plan to do this whilst running a tight ship.
Hims & Hers Q3 2023 Earnings Presentation
By 2025, Hims & Hers is estimated to generate annual revenues and adj. EBITDA in excess of $1.2B and $100M, respectively. Furthermore, management's profitability targets peg gross margin to be in the mid-70s and adj. EBITDA margin to be in the 20-30% range over the long run.
Hims & Hers Q3 2023 Earnings Presentation
Now, let's re-evaluate Hims & Hers using our valuation model to determine the company's fair value and 5-year CAGR expected returns.
Hims & Hers Fair Value And Expected Returns
TQI Valuation Model (TQIG.org)
TQI Valuation Model (TQIG.org)
According to these results, Hims & Hers is worth roughly $38 per share, and investors buying in here could expect to generate a CAGR return of ~65% over the next five years.
A significant update on our previous valuation:
Old FV estimate: $30.99, New FV estimate: $38.13
Old Base case PT (5-yr): $60.20, New Base case PT (5-yr): $82.69
This upgrade is driven by Hims & Hers' better-than-expected top and bottom line performances in Q2 & Q3 2023, and updated guidance for Q4 and FY'23.
After hitting the ~$12 target of the neckline breakout of its inverse head & shoulders pattern, Hims & Hers stock has retreated back to the support trendline marked in green on the chart below.
Hims & Hers stock chart (22nd May 2023) (WeBull Desktop)
With HIMS stock poking below its support trendline, we could see this reversal lead the stock back down to the neckline at ~$7.5 in the upcoming weeks and months. However, if HIMS manages to hold this level and bounce back above $10, then the stock could easily extend to the $14-15 range. Technically, the HIMS stock chart looks finely poised at the moment.
In my view, the latest pullback is purely a technical correction, which represents a fantastic buying opportunity for long-term investors. Given balanced near-term risk/reward, I do prefer staggered accumulation. That said, we hold a significant position in Hims & Hers at my investing group and the plan is to add more on sizeable pullbacks.
Since then, HIMS stock has pulled back down to the $5.8-7.2 support range [61.8-78.6% Fib levels]. And, as of writing, HIMS stock is sitting smack in the middle of this range, after having bounced from ~$5.7 last week.
WeBull Desktop
While HIMS may or may not have struck a bottom here, I think there's more near-term upside given the positive divergence in RSI and MACD indicators on the daily chart. For the near term, I am constructive on the HIMS stock chart.
Concluding Thoughts
Given Hims & Hers' robust business performance, undervaluation, and bullish technical setup, I continue to view HIMS as a "Strong Buy" at current levels.
Key Takeaway: Hims & Hers is a "Strong Buy" in the $6s.
Thanks for reading, and happy investing. Please share your thoughts, questions, or concerns in the comments section below.
News, Short Squeeze, Breakout and More Instantly...
Market Wire News is a media platform, the information on this page was provided by SeekingAlpha via Quote Media. Read our full disclaimer.
Link your Twitter Account to Market Wire News
When you linking your Twitter Account Market Wire News Trending Stocks news and your Portfolio Stocks News will automatically tweet from your Twitter account.
Be alerted of any news about your stocks and see what other stocks are trending.
Contact the Author
Stock Information
Get HIMS Alerts
News, Short Squeeze, Breakout and More Instantly...
Bringing experience from Novo Nordisk and Teva Pharmaceutical Industries, Schultz joins the Hims & Hers Board of Directors to help the company increase access to health and wellness solutions Hims & Hers Health, Inc. (“Hims & Hers”, NYSE: HIMS), the leading hea...
2024-07-20 09:00:00 ET With shares up a blistering 150% year to date, Hims & Hers Health (NYSE: HIMS) boasts everything an investor could dream of these days: rapid expansion, a vast addressable market, and a reasonable valuation. Let's explore why it is my top growth ...
Hims & Hers Health, Inc. ("Hims & Hers") (NYSE: HIMS), the leading health and wellness platform, today announced that it will report second quarter financial results after the market closes on Monday, August 5, 2024. The company will host a live conference call to discuss the results at 5...
Link your Twitter Account
Link your Twitter Account to Market Wire News
When you linking your Twitter Account Market Wire News Trending Stocks news and your Portfolio Stocks News will automatically tweet from your Twitter account.
Be alerted of any news about your stocks and see what other stocks are trending.
Trending Stock Alerts
Trending Stock Alerts
Our Next Stock Alert could be Coming in Minutes!
Sign Up Today To Get Full Access To Our Next Stock Report!
Day Before Email and Text Notifications of New Alerts