Why Hims & Hers Health Stock Sank This Week

Shares of Hims & Hers Health (NYSE: HIMS) sank 10.5% this week, according to data from S&P Global Market Intelligence. The telehealth company that sells dermatology, sexual health, and weight loss drugs directly to consumers posted strong growth for the fourth quarter of 2024 but has investors concerned over the legality of its weight loss drug compounds.

The stock is down 10.5% as 2 p.m. ET on Friday, while the stock is still up 224% in the last year. Here's why Hims & Hers stock fell this week.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Fast growth, concerns over weight loss product

Q4 2024 showed more blockbuster growth for Hims & Hers. Revenue growth accelerated to 95% year over year, hitting $481 million in the last three months of the year. Gross margin remained high at 77% in the period, leading to increased operating leverage as the business scales. The company generated just under $200 million in free cash flow in 2024 compared to $47 million in 2023, which shows that Hims & Hers can self-fund its growth.

And the company is being aggressive to try and win new customers for its online health and medications marketplace. It spent $679 million on marketing in 2024, which was 46% of its revenue. However, given how fast revenue is growing and its positive free cash flow, Hims & Hers seems to be getting a good return on this marketing spend.

So what's the problem? Why is the stock down? Well, besides the fact that Hims & Hers stock has been on a tear in recent quarters and was likely due for a pullback, investors are concerned over the company's new weight loss drug programs. Since GLP-1 drugs such as Ozempic have been in a shortage, Hims & Hers used a loophole in the law that allowed it to produce these drugs even though they were developed by other companies such as Novo Nordisk.

Now, the official shortage has been lifted. Although Hims & Hers is saying it will still make its own compounded GLP-1 drugs in 2025, it is up in the air whether the U.S. government or court systems will allow the company to sell these weight loss drugs anymore, which were a huge boost to revenue growth in 2024.

Investors betting on more growth

The good news is, Hims & Hers is not just weight loss drugs. The vast majority of its revenue still comes from its older products in treatment areas such as dermatology, hair loss, and sexual drive. In 2025, management is guiding for revenue to grow to between $2.3 billion and $2.4 billion compared to just under $1.5 billion in 2024.

Over the long term, management believes the company can hit at least 20% adjusted profit margins. While adjusted profit margins are not actually important for investors (even if management teams highlight them), it could lead to a 15% free-cash-flow margin due to Hims & Hers' asset-light business model.

A 15% margin on $2.4 billion in revenue equals $360 million in annual free cash flow. Given the huge marketing opportunity ahead and Hims & Hers' fast historical growth, I think the company can hit $5 billion in revenue within the next few years, which would be good news for investors.

Should you invest $1,000 in Hims & Hers Health right now?

Before you buy stock in Hims & Hers Health, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Hims & Hers Health wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $736,343!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of February 28, 2025

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.