Edited by Brian Birnbaum and an update of my original Hims deep dive.
Hims is a $40-60$ stock today. But I believe the stock is likely to be in the $1,800-$2,000 range by 2030.
A company growing revenue at this rate is fairly valued between 8X-10X sales. Hims is trading at just below 5X sales ($29.70 as of today’s close)–a moderate price for a company growing revenue at 90%. As such I believe that the current fair value of Hims stock is between $40 and $60 and likely to go much higher over the long term.
Hims is, fundamentally, an extraordinary company, and in its very early stages to boot. This is best evidenced by rapidly growing revenue and converging net income depicted in the graph below. Per usual, my conviction runs far deeper than the numbers, as is necessarily the case when buying a young tech company with a long runway. The market loves to spin new narratives about companies in their formative years, molding them to reflect whatever outcome seems most likely on any given day, which nine times out of ten is based on largely irrelevant factors that will have little to no impact on the company’s long-term success. However, these factors lend their stock prices a high degree of volatility and, therefore, danger for short-term traders and investors who lack the long view.
In my 10 years holdingAMD, I’ve seen the stock decline over 50% numerous times, and if it weren’t for strong mental models, I wouldn’t have managed to hold through the narrative du jour. The mental model upon which my conviction is based not only offers Hims investors great clarity and is also replicable in identifying and holding other early-stage, world-class companies through the attendant ups and downs en route to achieving extraordinary returns over the long term. This is the same mental model behind my 32X Tesla, 28X AMD and 10X Palantir investments–al of which are still running–which I teach in myTech Stock Goldmine course.
Extraordinary investments are often the result of buying companies with nearly infallible operational capabilities and, for all intents and purposes, infinite runways. Over time they tend to solve a growing volume of acute customer pains in a way that’s increasingly harder to replicate. The resulting highly defensible and ever-rising earning power translates into exponentially rising free cash flow per share, sending the stock over the long term to levels once unfathomable to lesser investors. I like to call these companies optimization machines–of which Hims is a prime example.
From a first-principles basis, a company is simply an optimization function. It’s just a bunch of people that collaborate in order to minimize inputs and maximize outputs for as long as possible. The vast majority of companies are fairly mediocre, but once in a while a de facto optimization machine comes along and excels on all levels. Over the long term they tend to evolve as depicted below, far surpassing the expectations of most observants.
Hims has demonstrated a remarkable ability to deploy new personalized healthcare verticals at an increasing speed. The rate at which Hims solves additional acute patient problems is accelerating every quarter. As the number of healthcare verticals deployed and percentage of patients opting into personalized treatments increases, competitors will face exponentially increasing difficulty in replicating the operation. Hims is an optimization machine that’s constantly enhancing its earning power and, as a result, over the long term, likely to evolve as depicted above.
As of Q3 2024, a majority of Hims subscribers are on a personalized plan as you can see below.
Over the past few months the narrative regarding the weight loss vertical has taken control over Hims’ stock. However, the idea that Hims management would assign capital to a vertical that could be rendered obsolete by the whims of the FDA implies that the management team is incompetent. On the contrary, the management team has only exhibited signs of excellence, especially when it comes to capital allocation. Deployment of new healthcare verticals finds success specifically because they’re selected for positive ROI.
World-class management teams essentially do two things: allocate capital well; and create a culture that yields near-infallible operational capabilities. When this happens, the company in question tends to defy the odds. For example, Hims managed to achieve positive cash from operations while launching new healthcare verticals and building the enabling infrastructure on the fly–all of this while operating outside of the traditional healthcare insurance system. The probability of getting all of this right sequentially was near zero–unless driven by a world-class culture and, by extension, extraordinarily talented management team.
Companies of this sort just keep on making more money. Over the long term the stock just goes up. While we can’t predict the future, we can bet on companies that are highly likely to overcome obstacles along the way. When you understand a company at this level of granularity, the market’s manufactured narratives are rapidly revealed as superficial and thus have little power over you.
This doesn’t mean we should ignore facts as they present themselves. Rather, we should discern between data points that modify the fundamentals in a truly negative way and those with little or no impact. For example, the aforementioned weight loss narrative completely ignores the fact that Hims’ management excels at allocating capital in the healthcare space. Without further evidence to prove that either a) they won’t be able to continue selling such drugs and/or b) such a loss of revenue would significantly hamper their progress, we have no choice but to judge such narratives to be superficial and whimsical. On the other hand, should a fact contrary to the above present itself, one that could potentially alter our fundamental view of the company, we would give it more weight.
In the meantime, here are the relevant facts:
Hims CEO Andrew Dudum has stated on earnings calls that their 503a status allows them to continue selling GLP-1 drugs regardless of their FDA short-list status.
Furthermore, contrary to what the market would have you believe, GLP-1 drugs make up merely 4%-8% of Hims’ revenue. (Meanwhile, one of the big trading houses downgraded Hims specifically because they don’t “believe” Hims weight loss sales can grow as projected.)
Hims is currently a $6.5B company operating in a $4T industry. The whole operation is based on a cost advantage, with a focus on offering better patient outcomes per dollar invested, while the rest of the industry is focused on inflating prices with no regard for patient outcomes. For healthcare incumbents to compete with Hims, the necessary cultural shift, coupled with a transition to a digital-first approach, represents an overwhelming set of obstacles. For potential new entrants like Amazon, Hims’ exclusive focus on healthcare is likely to prevail, as has happened with Spotify in the battle versus Apple and Amazon.
Taking all of the above into consideration, Hims is likely to grow 50-100X as it deflates the US healthcare industry and expands internationally. At their disposal remains an infinite number of verticals, and their ability to deploy them while increasing cash flow per share is nearly unrivalled. Indeed, so long as their world-class capital allocation and culture endures, $2,000/share by 2030 is likely for Hims.
Notice how I repeatedly use the term likely, since the above is actually a probabilistic model. Just because a company has extraordinary capital allocation and operational abilities doesn’t mean success is guaranteed. However, it’s probable that said company will ultimately find a way to increase free cash flow per share over the long term, with the stock price following suit.
Building a portfolio of optimization machines is a transitive exercise: it also optimizes the probability of long-term success. Given the scale of the winners, all it takes is one to drag the portfolio into outperformance–even if the rest go to zero. Better yet, chances are overwhelmingly against such a scenario given that we seek the world’s best companies. All of my portfolio companies possess world-class capital allocation and organizational capabilities, enabling them ever-greater revenues and increasingly defensible moats over time. For example, my Palantir and Spotify picks have each individually returned my total capital invested ever.
I believe this is just the beginning for Palantir and Spotify, which puts me in a position to assume more risk in companies that haven’t completely proven themselves yet, like Hims. Regardless, every quarter provides me with more data to further suggest that Hims is an extraordinary optimization machine. I believe that by 2030 the stock will be much higher than today. Why? Because Hims will be producing far more free cash flow per share, which, after the speed at which Hims deploys new verticals, is the most important KPI.
To make matters even better, Hims’ current FCF is artificially low due to massive marketing spend. While short-term traders and myopic investors see this as a burden, we see the ROI on their marketing–as with all Hims’ capital allocation projects–and recognize the incredible potential ahead. Current earning power is far higher than Hims’ cash flow statement suggests. As Hims matures and marketing requirements decrease–hopefully not for a long while yet–we will see yet another huge boost to FCF/share.
As long as free cash flow continues rising, I will continue to hold the stock. As you can see in the graph below, the trend is more than appealing for now.
Until next time!
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Hey Antonio :) Quick question:
What are your initial thoughts on insiders activities? What are you thinking about them selling at this stage?
I agree, Hims is performing great and launching new verticals faster. But I don’t think they will accelerate higher than 2 verticals per year. Weight loss in H1.2024, menopausal treatments in H1.2025, hormonal treatments H2.2025-H1.2026… reaching tens of them by 2030 doesn’t look likely