Key Takeaways:
- The 2-Minute Valuation Model values HIMS stock at $39/share in 2 years.
- HIMS can potentially disrupt the healthcare industry and could offer 12.2% annual returns over the next 2 years.
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What is the 2-Minute Valuation Model?
There are 3 core factors that drive a stock’s long-term value:
- Revenue Growth: How big the business becomes.
- Margins: How much the business earns in profit.
- Multiple: How much investors are willing to pay for a business’s earnings.
The 2-Minute Valuation Model uses a simple formula to value stocks:
Expected Normalized EPS * Forward P/E ratio = Expected Share Price
Revenue growth and margins drive a company’s long-term normalized EPS, and investors can use a stock’s long-term average P/E multiple to get an idea of how the market values a company.
Why HIMS Could Be Undervalued
Forecast
On Hims & Hers’s Analyst Estimates tab shown below, you can see analysts expect HIMS to grow revenue at a 26.1% compound annual growth rate over the next 3 years, with normalized earnings per share, or EPS, expected to grow a little slower at 17% annually:
View HIMS’s full analyst estimates >>>
For context, HIMS grew considerably faster over the past 5 years, with revenue growing at 77.7% per year. HIMS is still expected to see high growth going forward, but it’s considerably less than past growth.
Valuation Multiple
HIMS currently trades at around $31 per share, which means the stock trades at just above 5 times next year’s expected revenue and around 35 times next year’s expected earnings.
HIMS has averaged a 33x forward P/E multiple over the past year, although it has traded as low as 20.5 times earnings:
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To be conservative, we’ll use a slightly lower 30x forward P/E multiple in our valuation.
Fair Value
3 years from now, HIMS is expected to reach about $1.29 in normalized EPS. At a 30x NTM P/E multiple, that values HIMS stock in 2 years at $39/share.
The NTM P/E multiple uses the next twelve months’ expected earnings, so a 2-year valuation uses 3-year EPS forecast figures.
With the stock trading at about $31 today, this implies that shareholders could get a 12.2% return per year over the next 2 years, or a 26% total return with HIMS stock today:
This sounds pretty great, but these higher returns might come at a higher risk for investors.
Risks:
Hims & Hers’s growth could slow more than expected if demand for telehealth services or its subscription model weakens over time.
If customer acquisition costs rise or churn rates increase, Hims & Hers might struggle to meet its revenue or profit targets, which could lower its projected EPS and subsequently reduce the stock’s valuation for investors.
Hims & Hers is undoubtedly positioned as a leader in digital health, but it’s only a great stock to buy at the right valuation.
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Analysts’ Price Target
The consensus analyst price target for HIMS today is about $25 per share, which means analysts think the stock is slightly overvalued:
It’s not a good sign that analysts think HIMS is overvalued, but it doesn’t necessarily mean they are right.
Analysts’ price targets can suffer from many biases and aren’t always accurate.
Still, looking at analysts’ consensus price targets can be a great way to get a “second opinion” on your own stock valuation.
TIKR Takeaway
Based on the 2-Minute Valuation Model, it looks like HIMS stock is slightly undervalued today and could offer a 26% return over the next 2 years. However, higher customer acquisition costs or churn rates could hurt the company’s growth forecast.
Don’t take our word for it—try it out for yourself! Analyze HIMS stock or any stock you’re interested in on TIKR today!
The TIKR Terminal offers industry-leading financial data on over 100,000 stocks and was built for investors who think of buying stocks as buying a piece of a business.
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. We aim to provide informative and engaging analysis to help empower individuals to make their own investment decisions. Neither TIKR nor our authors hold positions in any of the stocks mentioned in this article. Thank you for reading, and happy investing!
