Shares of online pharmacy Hims & Hers (HIMS -7.14%) dropped as much as 12.8% on Thursday after a short-seller wrote a report about the company. Shares recovered slightly during trading and are down 7.8% at 2:30 p.m. ET today.
The short-seller’s report
Hunterbrook Media put out what appears to be a journalistic article, but it’s in fact tied to Hunterbrook Capital, which is short the stock. As with any short report, investors should read it with an open mind but remain skeptical of the motivations of the writers.
In this case, Hunterbrook criticized Hims & Hers’ GLP-1 weight-loss treatment, which is a compound made by a pharmacy and temporarily approved to fill shortages of GLP-1 drugs, and not a government-approved medication itself. There are questions, even by the Food and Drug Administration, about how effective the treatment is compared to approved versions of GLP-1.
The Hunterbrook report also criticized the company’s prescription process and insider sales of the stock.
Risks at Hims & Hers
It isn’t that the short-seller’s report is incorrect, it’s that it was presented in a way that only told one side of the story. Hims & Hers could be more rigorous in its prescription process and could improve the suppliers it uses. However, these same criticisms could be leveled at the traditional medical system.
As with any short report, I’m inclined to take this information as a solid bear case against the stock and monitor developments. But I also see this as a growing pain for a disruptive healthcare company that could be a net positive for investors and society.
Travis Hoium has positions in Hims & Hers Health. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.