Expansion Into New Specialties May Attract Consumers, But Marketing Costs And Regulatory Risks Could Strain Margins

Key Takeaways

• Expansion into new medical specialties and personalized solutions are expected to drive broad consumer attraction and future revenue growth.
  
• Technological advancements and operational efficiency improvements aim to enhance margins and optimize resource allocation.
  
• Significant marketing expenses and regulatory uncertainties could strain net margins, while reliance on personalized treatments and capital investments could impact revenue growth and liquidity.

Catalysts

Operates a telehealth platform that connects consumers to licensed healthcare professionals in the United States, the United Kingdom, and internationally.

• The integration of personalized solutions into the Hims & Hers platform and the expansion into new specialties such as weight management are likely to drive future revenue growth by attracting a broader set of consumers.
  
• Increasing efficiency in operations, notably through technological advancements and vertical integration at affiliated facilities, is expected to improve adjusted EBITDA margins by optimizing resource allocation and reducing costs.
  
• Strategic investments in capacity expansion and automation across 503(a) and 503(b) facilities will allow the company to meet increased demand for personalized solutions, potentially enhancing revenue and margins as production scales.
  
• Expanding multi-condition solutions and increasing customer retention through high levels of customization can drive higher revenue per user, thereby positively impacting future earnings.
  
• Continued success in attracting and retaining subscribers from diverse demographic backgrounds, including less affluent communities, indicates strong demand for the platform, supporting sustained revenue growth over time.

Hims & Hers Health Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Hims & Hers Health's revenue will grow by 31.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 8.2% today to 8.0% in 3 years time.
• Analysts expect earnings to reach $224.4 million (and earnings per share of $0.81) by about December 2027, up from $101.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 36.5x on those 2027 earnings, down from 65.1x today. This future PE is greater than the current PE for the US Healthcare industry at 23.7x.
• Analysts expect the number of shares outstanding to grow by 8.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.92%, as per the Simply Wall St company report.

Hims & Hers Health Future Earnings Per Share Growth

Risks

• The company's marketing expenses are significant, consuming a large portion of revenue. While they have been reducing these expenses as a percentage of revenue, it remains a considerable cost that could impact net margins if not managed carefully.
  
• The company's gross margin has declined due to expanding their weight loss specialty offerings. While they expect future efficiency gains, continued degradation could affect overall profitability.
  
• There is regulatory uncertainty regarding the compounding and use of medications like GLP-1, which poses a risk to the revenue generated from these offerings if regulations become more restrictive or if shortages resolve and affect the demand for compounded medications.
  
• The company's reliance on expanding its subscriber base through personalization of treatments might falter if the demand for such tailored solutions wanes or if they fail to innovate at the current pace, impacting revenue growth.
  
• The financials predict substantial capital investments for increasing automation and capacity, which, while intended to support growth, could strain cash flow and impact liquidity if these investments do not yield anticipated returns.

Valuation

• The analysts have a consensus price target of $24.9 for Hims & Hers Health based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $38.0, and the most bearish reporting a price target of just $18.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $2.8 billion, earnings will come to $224.4 million, and it would be trading on a PE ratio of 36.5x, assuming you use a discount rate of 5.9%.
• Given the current share price of $30.19, the analyst's price target of $24.9 is 21.2% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.