Why Investors Shouldn't Be Surprised By Hims & Hers Health, Inc.'s (NYSE:HIMS) 70% Share Price Surge

Hims & Hers Health, Inc. (NYSE:HIMS) shareholders would be excited to see that the share price has had a great month, posting a 70% gain and recovering from prior weakness. The annual gain comes to 197% following the latest surge, making investors sit up and take notice.

After such a large jump in price, when almost half of the companies in the United States' Healthcare industry have price-to-sales ratios (or "P/S") below 1.1x, you may consider Hims & Hers Health as a stock not worth researching with its 5.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Hims & Hers Health

How Hims & Hers Health Has Been Performing

Recent times have been advantageous for Hims & Hers Health as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hims & Hers Health.

Is There Enough Revenue Growth Forecasted For Hims & Hers Health?

In order to justify its P/S ratio, Hims & Hers Health would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 56%. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 27% per annum as estimated by the analysts watching the company. That's shaping up to be materially higher than the 7.2% each year growth forecast for the broader industry.

With this information, we can see why Hims & Hers Health is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Hims & Hers Health's P/S has grown nicely over the last month thanks to a handy boost in the share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Hims & Hers Health maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Healthcare industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Hims & Hers Health.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com