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KEYPOINTS
Hims & Hers Health Inc (NYSE: HIM), a subscription-based telehealth company, shows promise with strong financials, industry growth, and competitive advantages, but ethical concerns, employee dissatisfaction, and product liability risks warrant caution.
Despite its attractive valuation and growth prospects, Hims & Hers faces potential legal and financial repercussions due to its manufacturing of compounded medications that are not FDA-approved.
The company's business model, which seems designed to encourage increased medication use, raises ethical concerns in a society with a growing dependence on prescription drugs.
Table of Contents
In my quest to diversify my portfolio, I stumbled upon Hims & Hers Health Inc (NYSE: HIM), a young, subscription-based telehealth company offering personalized treatments for men's and women's health concerns.
Initially, I was intrigued. Hims & Hers seemed to check many of my investment boxes:
Apparent Strengths:
Valuation:
Attractive PS ratio of 5x, especially considering its past highs.
The telehealth industry is booming, with an expected 9% annual growth rate for the next few years (Source: Statista).
Impressive Revenue Outlook/ Guidance:
Hims & Hers boasts a stellar 57% average outlook revenue growth rate over the past three years, they expect Revenue growth for the full financial year to be growing at 59% from the last year, a standout among the many companies I've researched.
High ratings on both Apple's App Store and Google Play Store indicate a positive user experience, which is crucial for a subscription-based model business like Hims & Hers's.
Financials:
Promising financial health for a young company:
minimal debt,
healthy and rapidly increasing free cash flow,
consistent revenue growth at an average of 76% over the past few years.
has a robust and growing cash & equivalents position.
Management & Culture:
A young (35-year-old) co-founder CEO with a significant ownership stake (9%) and increasing R&D spending suggest a focus on innovation.
The employee mix also appears healthy, with a good balance between healthcare services, engineering, and IT roles.
Competitive Advantages:
Moderate to High Switching Costs: Patients who develop a relationship with Hims & Hers doctors may be hesitant to switch to a new provider.
Brand Recognition: While not a dominant player, Hims & Hers is gaining popularity in its niche market.
Potentially High Customer Lifetime Value: The personalized subscription model creates an incentive for customers to stick with Hims & Hers for their ongoing needs.
Reasons for Caution:
Despite these apparent strengths, I've decided to hold off on investing in Hims & Hers for now. Here's why:
Employee Concerns:
Hims & Hers' Glassdoor rating raises red flags.
While a majority of employees would recommend the company, the overall rating is just 3.2 out of 5, with concerningly low CEO and senior management approval ratings. Reviews suggest a lack of open communication and a potential culture of mistrust.
Ethical Considerations:
The company's website and app seem designed to encourage increased medication use. Many of the medications offered address conditions (erectile dysfunction, hair loss, weight loss, anxiety/depression) that could potentially be improved through lifestyle changes.
In a society with a growing dependence on prescription drugs, Hims & Hers' business model could contribute to this trend, raising ethical concerns despite potential profitability. (Links to Hims & Hers websites included in the final blog post).
Liability Risks:
Beyond distributing medications from other companies, Hims & Hers manufactures some compounded medications through third parties. These medications, while cheaper than traditional options, are not FDA-approved and have been flagged by the FDA for safety concerns. In the worst-case scenario, adverse health effects from these medications could lead to significant legal and financial repercussions for Hims & Hers.
Conclusion:
While Hims & Hers presents an intriguing investment opportunity, the potential for ethical concerns, employee dissatisfaction, and product liability issues gives me pause. Especially considering the need to potentially reduce holdings in other quality stocks to make space for Hims & Hers, the risk outweighs the reward at this point in time.
Following the golden rule of investing - "don't lose money" - I'd rather miss out on potential gains than expose my portfolio to significant risks.
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