Is Hims & Hers Stock in Trouble?

Telehealth firm Hims & Hers (HIMS) recently saw its partnership with Novo Nordisk (NVO) terminate over NVO's concerns regarding HIMS's marketing practices and "mass sales of compounded drugs." Novo Nordisk criticized HIMS's reliance on unapproved, compounded versions of drugs like Wegovy, which it deems illegal and unnecessary despite HIMS's justification of personalized solutions. This controversy introduces substantial legal and growth risks for HIMS, despite its significant past stock gains and robust revenue growth to $1.8 billion, particularly given its high valuation exceeding 70 times trailing earnings.

Analysis

The recent termination of a nascent partnership between Hims & Hers Health (HIMS) and Novo Nordisk (NVO) has exposed a significant business model risk for the telehealth company. Novo Nordisk publicly cited HIMS's marketing practices as "deceptive" and alleged the "mass sales of compounded drugs" were unlawful, directly challenging Hims & Hers' core strategy of offering personalized, unapproved drug formulations. This development casts a shadow over the company's impressive financial performance, which includes revenue growth from $272 million in 2021 to $1.8 billion on a trailing-twelve-month basis and recent profitability of $164 million. Despite its stock surging 172% last year and more than doubling year-to-date, this controversy introduces substantial legal and regulatory uncertainty. The company's high valuation, trading at over 70 times trailing earnings, is now juxtaposed against the potential for its growth model to be thwarted if it faces legal challenges or is forced to cease selling compounded drugs.

Key Decisions for Investors

• Investors should reassess their risk exposure to HIMS, as the allegations from Novo Nordisk introduce significant legal and regulatory threats that could undermine the company's core business model and high valuation.
• Monitor for any statements from regulatory bodies like the FDA or further legal actions concerning compounded drugs, as these would be critical catalysts for the stock's future.
• Given the elevated valuation at over 70 times trailing earnings and the newfound uncertainty surrounding its growth sustainability, a cautious approach is warranted; consider taking profits or waiting for clarity on the legal fallout before adding to positions.