After recommending Hims & Hers 
HIMS as a ‘Strong Buy’ from $6, we recently downgraded it due to its stretched valuation. Since then, the stock has dropped over 40%, but we don’t yet see it as a clear value proposition at current levels.
HIMS combines two critical elements:
– High lifetime customer value with low churn
– High gross margins (customers generate substantial gross profit)
This combination gives management strategic flexibility with cash deployment. The sticky business model makes sense: customers treating conditions like hair loss or weight management have little incentive to switch providers.
Recent financial results have been impressive:
– Robust YoY revenue growth (~50% expected this year, ~20% for following years)
– EPS turning positive with significant operating leverage
– Potential to reach ~$400M in operating income in the near future
At ~$27.50 per share, HIMS trades at:
– 4.1x sales
– 52x TTM net income
While our bullish projections suggest this multiple could compress to 18-20x within 12-18 months, we’d prefer entry at $18-$20 per share.
Given our outlook, selling put options presents an attractive alternative: Selling the August 15th $18 strike puts:
– Premium: $1.30 per share ($130 per contract)
– Required margin: ~$1,670 per contract
– Yield: 7.7% over 112 days (27.7% annualized)
This strategy offers two favorable outcomes:
If HIMS stays above $18: Keep the premium (27.7% annualized yield)
If HIMS falls below $18: Buy shares at an effective 35% discount from current price (plus premium)
At $18 per share, HIMS would trade at ~36x TTM earnings – a much more attractive entry point.
Risks:
– If HIMS collapses suddenly, put sellers must still purchase at $18
– HIMS remains highly volatile
– Two potential earnings reports during the option period could increase volatility
– Stock could potentially trade into the lower teens
Despite these risks, the risk/reward ratio appears favorable, and we maintain a ‘Buy’ rating on HIMS.