Investing in healthcare stocks may not seem very exciting. This group of low-beta stocks serves as a defensive area of the consumer staples sector without much growth or activity. That is, of course, until technology comes into the mix, and everyone knows that's where all the market action seems to be today.
You can justify your excitement in Hims & Hers Health Inc. (NYSE: HIMS) because of its steady demand, exciting growth and attractive technology proposition. You may have seen the company's advertisements across social media platforms like Instagram and YouTube.
Touching on challenging, commonly shared issues like hair loss and intimate aspects of health and relationships, this company is close to being the proverbial "shooting fish in a barrel" regarding demand and future growth. But that's taking the imaginative side; analysts are also bringing Wall Street's approval to where this stock could go soon.
Momentum: On your side
When professional traders at investment houses like The Goldman Sachs Group (NYSE: GS) and Morgan Stanley (NYSE: MS) start looking for places to deploy some of their buying power, typically a process called "top-down analysis" is applied. The whole objective is finding the best pockets of the economy that promise outsized returns.
The latest employment situation report shows that the United States economy added 353,000 jobs in the past month. Of these, 70,300 jobs landed in the private healthcare sector; that's close to 20%!
Is it an indication of busier times ahead for your industry or respective business? It's precisely what's happening in healthcare today, inevitably pushing the envelope on Hims stock.
Because the Health Care Select Sector SPDR Fund (NYSEARCA: XLV) has underperformed the broader S&P 500 index by as much as 13.2% over the past 12 months, the gap has been made wide enough to get you excited about closing the performance by aligning your portfolio with the best healthcare stocks to catch up to the rest of the market.
Looking for a further discount to add to this catch-up story, you can notice how Hims stock trades at only 77% of its 52-week high prices.
According to Wall Street, a 20% or more decline from recent highs is considered a bear market; well, once you look at the company's figures, you'll see why it should be in nothing but a bull market.
The market is after this
What could cause analysts to feel so comfortable placing a price target of $12.30 a share on Hims stock? One of the main components is these same analyst projections for earnings per share growth figures in the next 12 months, which is a staggering rate of 162.5%.
Comparing these figures to a close competitor who brings some tech excitement to the healthcare sector, like GoodRx Holdings Inc. (NASDAQ: GDRX), can make the distinction even clearer.
Analysts only see EPS growth of 44.4% for the next 12 months, which is less than half of the rates expected for Hims stock; there must be a reason for that.
So, what are the actual business financials like today, apart from the obvious demand trends? Moving to management's investor presentation for the latest quarterly results can be an excellent place to start.
Apart from excellent marketing, here are the main takeaways from that presentation to further build your potential bull case. Over 90% of revenue is derived recurringly, meaning it does not come from one-time sales but rather from subscriptions or membership models.
Another stock with a similar retention rate is Ulta Beauty Inc. (NASDAQ: ULTA), which has brought investors a smooth ride up and to the right. Revenue growth is up 57% over the year on 56% growth in its subscriber base.
Even better, operating on a 75% gross margin allows management to reinvest aggressively into their growth strategy, which analysts absorb and justify via their targets and projections.
