Hims & Hers (NASDAQ:HIMS), a telehealth platform with a market capitalization of $14 billion, has seen its stock rise by 150% this year. The stock now trades at over 10x trailing revenues, raising questions about its valuation. However, this premium valuation appears justified when considering the company’s extraordinary growth trajectory and improving profitability metrics. But, if you seek upside with lower volatility than individual stocks, take a look at the High Quality portfolio, which has beaten the S&P 500 with returns exceeding 91% since its inception. Separately, see – What’s Next For UNH Stock After Its Recent 50% Fall?
Strong Growth Momentum Expected to Continue
After growing at a 76% average rate over the last three years, Hims & Hers is positioned to maintain substantial growth momentum. We project revenues could expand by more than 2x from $1.5 billion in 2024 to over $3.4 billion by 2027, representing an average annual growth rate of approximately 33%.
Several catalysts support this continued expansion:
- Long-term growth targets: The company projects a fourfold increase in sales to $6.5 billion by 2030.
- Strategic pharmaceutical partnerships: Novo Nordisk’s decision to offer its popular weight loss drug Wegovy through select telehealth platforms, including Hims & Hers, represents a significant opportunity. The company is actively pursuing additional pharmaceutical partnerships to expand its offerings.
- Expanding subscriber base: The platform currently serves 2.2 million customers, with healthy growth rates. This expanding user base creates recurring revenue opportunities across the company’s product portfolio.
Profitability Improvements on the Horizon
As Hims & Hers continues to scale, operational efficiencies should drive significant margin expansion. We anticipate operating margins could reach approximately 15% by 2027, compared to 6% over the last twelve months. With our projected revenues of $3.4 billion, this margin profile would generate over $500 million in profits by 2027.
Valuation Framework
If Hims & Hers revenues grow 2x while the stock price remains static, the price-to-sales (P/S) multiple would naturally contract from its current 10x to approximately 5x. But that’s what Hims & Hers’ investors are betting will not happen!
Given the company’s continued growth trajectory and improving profitability metrics, we believe the market will apply a more modest multiple contraction. A P/S multiple of around 7x by 2027 appears reasonable given the company’s growth profile relative to peers.
This valuation framework suggests the stock could appreciate by more than 50% over the next three years, potentially reaching $100 per share with a market capitalization exceeding $21 billion.
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While Hims & Hers currently trades at a premium valuation, the company’s robust growth outlook and path to enhanced profitability provide a compelling case for continued stock appreciation. Investors with a multi-year time horizon may find the current entry point attractive despite the seemingly elevated multiples.
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