Telehealth company Hims & Hers Health, Inc. (HIMS - Get Rating), which was founded in 2017, began trading on NYSE on January 21, 2021. It made its public debut after completing a merger with special purpose acquisition company (SPAC) Oaktree Acquisition Corp. However, the stock has plunged since hitting its all-time high of $25.40 on February 8. It is currently trading 46.9% below its 52-week high.

As a young company in the telehealth space, HIMS is  likely to take some time before it establishes itself as a strong competitor in the sector.

And, since the company is incurring losses, we think it’s wise to avoid the stock now. HIMS’ current financials just don’t justify its sky-high valuation.

Click here to checkout our Healthcare Sector Report for 2021

Here’s what I think could shape HIMS’ performance in the near term:

Momentum Unlikely to be Sustained in Post-Pandemic Era

HIMS’ revenue increased 67.4% year-over-year to $41.47 million for the fourth quarter, ended December 31, 2020. This was driven primarily by  increased demand for telehealth services amid the COVID-19 pandemic. However, the company’s loss from operations was  $4.63 million for the quarter and its total comprehensive loss was  $5.23 million. Its net loss per share also came in at $0.07 for the fourth quarter.

Also, once pandemic restrictions are lowered and more people resume visiting hospitals and doctors’ offices for treatment, the  demand for telehealth services is likely to decline.  As such,  HIMS’ revenues could  fall.

Increasing Competition from Established Players

HIMS is a young company and faces stiff competition from established players in the telehealth space, such as Teladoc Health, Inc. (TDOC). Amazon.com, Inc. (AMZN) has also entered the pharmaceutical fray  with the launch of Amazon Pharmacy in November 2020. , CVS Health Corporation (CVS), which is another top player in the healthcare space, has gained 7.1% so far this year while HIMS has lost 7.7% over the same period.

Expensive Valuation

In terms of its forward enterprise value/sales ratio, HIMS’ 14.98x is 103% higher than the industry average  7.38x. In terms of forward price/sales ratio, the stock’s 14.20x is also much higher than the industry average 8.01x. This lofty valuation doesn’t seem to be justified; analysts expect its EPS to remain negative in fiscal 2021 and fiscal 2022.

POWR Ratings Reflect Bleak Outlook

HIMS has an overall F rating,  which equates to Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. HIMS has a F grade for Value also, in sync with its higher-than-industry valuation ratios.

The stock has a D grade for Quality. This is consistent with its negative values for ROE and ROA.

Click here to access HIMS’ ratings for Growth, Momentum, Stability and Sentiment.

Of 79 stocks in the C-rated Medical – Services industry, HIMS is ranked #74.

Better than HIMS: Click here to access 26 top-rated stocks in the same industry.

Bottom Line

HIMS has fallen  sharply since hitting its all-time high on February 8, 2021 and has  lost 23.9% over the past month. The company is still in its infancy  and is incurring losses. Furthermore, it faces intense competition from industry leaders in the healthcare space. So, with all this in mind, we think it  wise to avoid the stock now.

Click here to checkout our Healthcare Sector Report for 2021

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HIMS shares were trading at $13.33 per share on Tuesday afternoon, down $0.15 (-1.11%). Year-to-date, HIMS has declined -8.70%, versus a 5.09% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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