Hims & Hers Health, Inc. (HIMS) has emerged as a prominent player within the burgeoning telehealth landscape. The company’s direct-to-consumer platform is disrupting conventional healthcare access, offering a range of services spanning prescription medications for conditions like sexual wellness and mental health, over-the-counter supplements, and personalised care bundles addressing dermatological and hair loss concerns.
Executive Summary
Recommendation: Buy
Target Price: $68.00 (representing a potential upside of 42% from the current price of $47.89 as of August 2023)
Time Horizon: 24 months
Investment Thesis: HIMS presents a compelling investment opportunity underpinned by its robust growth trajectory (70%+ revenue CAGR), scalable platform economics, and substantial market penetration potential. The company’s capital-light model (evidenced by gross margins of 79%), disruptive pricing strategy within elective care segments, and accelerating telehealth adoption post-pandemic contribute to its attractive investment profile. Near-term catalysts include the Q2 2025 earnings release (expected on 4 August) and the nationwide rollout of their weight-loss program.
Company Analysis
HIMS & Hers operates a vertically integrated telehealth platform with diversified revenue streams derived from recurring subscriptions (75%), one-time product sales (20%), and consultation fees (5%). The company caters to a predominantly millennial demographic (aged 25-45), with a relatively balanced gender split (58% male, 42% female). Geographically, HIMS & Hers derives the majority of its revenue from the U.S. market (88%), followed by the UK (9%) and other international markets (3%). The company commands an estimated 12% market share within the U.S. direct-to-consumer telehealth sector.[1][2][3][4][5]
Industry Overview
The U.S. healthcare accessibility market, estimated at over $450 billion, presents a substantial total addressable market (TAM). Within this landscape, the telehealth segment is experiencing significant growth, projected at a 22% compound annual growth rate (CAGR). HIMS & Hers focuses on a $120 billion serviceable addressable market (SAM) encompassing condition-specific treatments for areas such as sexual health, dermatology, and weight management. Key tailwinds propelling growth within this sector include the increasing regulatory acceptance of telehealth prescriptions, favourable demographic trends (ageing population), and the ongoing consumerisation of elective care. While the competitive landscape includes established players like Teladoc and emerging platforms like Talkspace, HIMS & Hers differentiates itself through its superior unit economics (demonstrated by a lifetime value to customer acquisition cost ratio (LTV:CAC) exceeding 5x, compared to peers typically below 3x).
Investment Thesis
Our bullish investment thesis on HIMS rests on several pillars:
- Disruptive Business Model: HIMS & Hers’ direct-to-consumer approach bypasses traditional healthcare intermediaries, enabling cost efficiencies and greater accessibility for patients.
- Strong Growth Trajectory: The company has demonstrated consistent triple-digit revenue growth, driven by increasing telehealth adoption and expanding service offerings.
- Scalable Platform: The technology-driven platform fosters scalability, facilitating expansion into new therapeutic areas and geographies with minimal incremental investment.
- Brand Strength and Customer Loyalty: HIMS & Hers has cultivated a strong brand identity and loyal customer base, contributing to high retention rates and recurring revenue streams.
Valuation & Forecasts
Our valuation incorporates a multi-faceted approach, including discounted cash flow (DCF) analysis, relative valuation using peer comparables, and precedent transactions analysis. Our base case DCF model, employing a weighted average cost of capital (WACC) of 12%, yields a target price of $68. This valuation aligns with our assessment of the company’s long-term growth potential and margin expansion prospects.
| Method | Bull Case | Base Case | Bear Case |
|---|---|---|---|
| EV/Sales (2025E) | 8.0x → $89 | 6.2x → $74 | 4.0x → $48 |
| DCF (WACC 12%) | $93 | $68 | $39 |
We forecast revenue to grow at a CAGR of over 70% over the next three years, driven by the expansion of their weight management and mental health services. We anticipate EBITDA margins to expand to 35% by 2027 as the platform scales and operating leverage improves.
Risks
While the investment case for HIMS is compelling, certain risks warrant careful consideration:
- Regulatory Changes: Potential shifts in telehealth regulations, particularly regarding prescription practices, could impact the company’s operations.
- Competitive Landscape: The telehealth market is becoming increasingly competitive, with the entry of new players and the expansion of existing healthcare providers.
- Reimbursement Rates: Changes in reimbursement policies from insurance providers could affect the affordability and accessibility of telehealth services.
Recommendation
We maintain a Buy rating on HIMS & Hers Health, Inc., based on our assessment of the company’s strong growth prospects, innovative business model, and attractive valuation. We believe HIMS is well-positioned to capitalize on the growing demand for telehealth services and to deliver significant shareholder value over the long term. Key watchpoints for investors include upcoming Q2 earnings results, regulatory developments within the telehealth landscape, and the execution of the company’s strategic growth initiatives.
