Stock Valuation Of The Week

Stock Insight

Hims & Hers Health (HIMS) is at the center of attention this week following news that Novo Nordisk has terminated their short-lived partnership, citing legal concerns around the mass sale of compounded semaglutide products under the guise of personalization. This move immediately cuts off direct access to Wegovy via Hims' platform, triggering a sharp selloff in the stock.

Despite the disruption, Hims has clarified that it will continue offering compounded versions of semaglutide through licensed pharmacies, a practice that, while legally gray, is not uncommon in the telehealth space. The larger concern now shifts to consumer trust and perception: will customers view compounded alternatives as equivalent to branded Wegovy, especially given the public scrutiny? Regulatory oversight could tighten, and any future FDA enforcement could directly impact this vertical.

The company's business model remains vertically integrated, giving it a strong brand moat with high customer retention and cross-sell potential. However, its growing exposure to high-demand weight loss drugs introduces both opportunity and execution risk. The addressable market is large, but so is the scrutiny.

Fundamentally, HIMS is now trading slightly above our estimated fair value of $42.76, with most of its upside already priced in. Still, the company has shown a major improvement in free cash flow, flipping from negative to $251M in 2024. Capital efficiency has also turned a corner, with a strong ROIC of 13.94% versus an 8% cost of capital — indicating value creation rather than destruction.

Whether or not HIMS is a buy at current levels depends on your comfort with two key risks: (1) regulatory pushback on compounded GLP-1s, and (2) potential loss of credibility or user confidence if quality or supply issues arise. Long-term upside is tied to how well Hims can navigate this scrutiny and diversify beyond this high-stakes category.