I challenge you to name another $20 stock with more long-term potential.
Raging hot inflation has made it harder to find value in anything these days. A $20 bill doesn’t go as far as it once did. But don’t get discouraged; that money can go a long way if you know where to put it. Yes, even in the stock market, you can still get a lot for $20.
Red-hot telehealth company Hims & Hers Health (HIMS 6.63%) recently exploded to nearly $20 per share on a major product announcement. Here’s why this is arguably the best stock you can buy for $20 on Wall Street, and the party could just be getting started.
The arrival of GLP-1 agonists
GLP-1 agonists like Ozempic have taken the healthcare world by storm. These products mimic a hormone that helps suppress appetite and regulate blood sugar, two fundamental aspects of weight loss.
Hims & Hers Health recently announced it would start carrying name-brand GLP-1 agonists and offering customized compounds containing active ingredients. The compounds are a big deal because they’re significantly cheaper than the name-brand drugs, as much as 85% less.
The cost savings will attract consumers, especially since Hims & Hers doesn’t require health insurance to access its healthcare providers. Patients can access insurance-free, low-cost consultations and have the products shipped directly to their houses.
Hims & Hers also put some exciting tidbits for investors in the announcement. For instance, the company’s weight-loss category is on track to eclipse $100 million in revenue by the end of next year. Significantly, that tally doesn’t factor in the launch of GLP-1 products, which means there is a significant upside in that number.
Part of a larger, fast-growing pie
Strip away the weight-loss category, and you still have a rapidly growing business thriving in multiple ways today. The company built its 1.7 million customer base on other healthcare categories, such as sexual health, dermatology, mental health, and hair loss. Revenue growth has slowed as the numbers grow, but Hims & Hers still turned in 46% year-over-year growth in the first quarter as it approached a billion dollars in annual revenue:
HIMS Revenue (TTM) data by YCharts
The cool part about this business is its flexibility. Weight loss should become a significant contributor to the business. Yet, when the company presented just before going public in early 2021, it wasn’t even listed as a potential future market.
Healthcare is such a diverse and fragmented market that investors could see Hims & Hers Health eventually “fall into” new product and care categories that previously weren’t on the radar. Good companies build themselves up and expand to new things, and investors are seeing Hims & Hers do that here.
A bargain at $20 per share
Shares have been up about 50% over the past month, so understandably, some people are skeptical about buying shares after such a run. Still, the numbers reveal a potential bargain sitting in plain sight.
Hims & Hers began consistently generating free cash flow last year as revenue grew faster than expenses. That continued until the company turned its first generally accepted accounting principles (GAAP) profit in the fourth quarter of 2023 and again in Q1 of 2024. This signals that Hims & Hers is in the early stages of operating leverage, where earnings snowball as more and more revenue growth trickles down to the company’s profit statement.
This became evident over the past two quarters, which is why you see analysts scrambling to raise their earnings-per-share estimates for 2024 and 2025:
HIMS EPS Estimates for Current Fiscal Year data by YCharts
Will Hims & Hers hit these estimates? Nothing is certain, but notably, the company has cleared analysts’ earnings estimates every quarter as a public company. That tells investors there’s a solid chance Hims & Hers will meet or exceed these numbers.
Assuming the business meets estimates, the stock trades at a forward P/E of 37 using this year’s estimates and 28 times next year’s. That’s a bargain for a company that could multiply its earnings per share over the next five years as customer numbers grow (up 41% year over year in Q1) and new products gain traction.
Management envisions millions of people eventually seeking healthcare through Hims & Hers, which means the investment story is still in its early chapters if that prediction is close to accurate.
Not bad for $20.
Justin Pope 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.