Hims & Hers Stock Plunges Amid Expansion and Mounting Regulatory Risks

What happened

Hims & Hers has demonstrated robust revenue growth and achieved GAAP profitability, but its stock has plunged 29.1% over six months, signaling investor unease with its lofty valuation and emerging challenges. The company is expanding into Canada and Europe via acquisitions like Zava, aiming to diversify its geographic reach and capitalize on telehealth demand. However, this growth push coincides with heightened regulatory scrutiny, particularly from the FDA on compounded semaglutide for weight loss, which jeopardizes a significant revenue driver. Execution risks are intensifying, as gross margins have compressed to around 74% due to higher costs in the weight-loss segment and marketing expenses remain elevated at 39% of revenue. Despite a net-cash balance sheet and positive free cash flow, the stock trades at approximately 62x earnings and over 50% above a DCF-based intrinsic value, offering a thin margin of safety amid these uncertainties.

Implication

The sharp decline in Hims & Hers stock reflects the market's growing apprehension about its ability to navigate FDA crackdowns on compounded GLP-1 drugs, which could significantly impact its weight-loss revenue. International expansion into Canada and Europe provides growth optionality but introduces integration complexities and regulatory hurdles in new markets. Margins are under strain from higher product and consultation costs in weight-loss care, while marketing spend remains structurally high, threatening long-term profitability. With the stock trading at over 60x P/E and a substantial premium to its DCF value, there is limited downside protection if operational or regulatory setbacks materialize. Therefore, value-oriented investors should adhere to a 'wait-and-see' approach, prioritizing evidence of margin stabilization and regulatory clarity before considering new investments.

Thesis delta

No material shift from the DeepValue report's 'WAIT' stance; the recent stock plunge and expansion news reinforce existing concerns over GLP-1 regulatory risk and margin compression. Investors should continue to monitor FDA actions and profitability metrics, as a pullback toward the $24 DCF estimate with improved fundamentals could warrant a reassessment, but current levels offer insufficient margin of safety.