Forests, Trees, and Hims & Hers' Decline

I started yesterday’s email with a similar line as today, “Our biggest advantage over the market is taking a longer-term view than most investors can.”

Yesterday, I was talking about Mobileye $MBLY ( ▼ 1.53% ). Today, I’m talking about Hims & Hers $HIMS ( ▼ 1.95% ).

I continue to think Hims & Hers is one of the best asymmetric opportunities in the market today, despite the decline in the stock recently.

In fact, the decline in the stock makes the upside potential that much bigger.

That doesn’t mean there’s a 100% chance of success. It means if there’s a successful outcome, the stock could be up 10x, even 100x, over the next decade.

I’ll explain why below.

The market is in something of a holding pattern as we head into earnings season. The Nasdaq 100 is up 2.0% for the year, and the S&P 500 has risen 1.4%.

The Asymmetric Portfolio continues its slide, driven by a few stocks that have underperformed the market, including Hims & Hers.

In the next two weeks, we’ll learn what direction both the market and the Asymmetric Portfolio are heading based on earnings.

I’m going to use Hims & Hers as a bit of a stand-in for the volatility we often see with growth companies. But the same could be said about Duolingo, On Holding, Robinhood, and many more.

When companies are growing quickly, there can be wild variations in a stock price as investors adjust their expectations up or down. Long-term, the ride seems smooth, but short-term, the difference between a few percentage points in growth here and there can seem enormous and cause huge reactions in a stock.

Amazon has compounded revenue growth at 25% for the last 20 years, and yet its stock has dropped over 50% three times and as much as 65% over that time.

Netflix revenue compounded at 23% and there were drawdowns of 76%, 81%, and 75% over the past 20 years.

NVIDIA revenue has compounded at 24% and it has dropped as much as 89% and has spent nearly a decade trading below its all-time high.

The lesson here is that we need to look at the forest, not the trees.

What companies are growing consistently and can continue to grow for decades like Amazon, Netflix, and NVIDIA did?

I present to you…Hims & Hers, which has a compound annual growth rate of 92% since 2018 and a 78% growth rate over the past year.

Here’s what’s crazy. Hims & Hers is growing faster than companies like Eli Lilly and Novo Nordisk (in its market) and Lemonade (another hot stock). And it is growing far faster than hot stocks like Tesla and Palantir.

And still, Hims & Hers trades for a lower price-to-sales multiple than any of these stocks (Palantir trades for 102x sales, and Tesla is at 15x sales).

It seems like expectations have dropped to incredibly low levels for Hims & Hers, but we’re not seeing that weakness in the numbers.

I’ve consistently said that four factors drive stocks higher.

You can see above that Hims & Hers is a growth machine.

Hims & Hers also trades for such a low multiple that multiple expansion from here could drive incredible returns if it only traded for the same price as similar high-growth stocks.

But margins are also trending consistently higher.

There are questions about Hims & Hers and what growth will look like this quarter, and where margins are going as weight loss prices come down.

But let’s not lose the forest for the trees.

People are using apps and digital tools to find solutions to medical questions and issues more than ever.

Real-time healthcare data is improving, and companies that can turn that into a platform will win.

AI is answering more healthcare questions, and trusted platforms with data and the ability to prescribe treatments will aggregate demand.

Hims & Hers is leading in this trend. Telehealth is disrupting a $400 billion pharmaceutical industry and the $5.3 trillion healthcare industry in the U.S. alone.

Why can’t a company like Hims & Hers grow 20%, 30%, 40%, or more for the next decade?

Who cares about a 50% drawdown?

Any great company has those.

What matters is the long-term growth, expanding margins, and the disruptive products being brought to market.

Take all of that together, and I think the questions about Hims & Hers’ future being asked by the market today are short-term in nature. Long-term, the company is built to disrupt everything from primary care to pharmacies to health care devices.

This is one of my top asymmetric stocks and one of the biggest positions in the portfolio for a reason.

I’m not missing the forest for the trees.