Hims & Hers Health (HIMS) experienced a sharp decline on Thursday, with shares falling 5.6% by midday. Despite an impressive 600% surge over the past year, the stock faced renewed pressure after Bank of America (BofA) analysts issued a mixed review. While raising the price target to $21, the firm maintained its “underperform” rating, signaling caution for investors.
Conflicting Signals From Bank of America
The recent stock drop can be attributed to the conflicting outlook provided by BofA. The firm acknowledged the company’s strong revenue growth and even projected that first-quarter 2025 guidance could surpass expectations. However, the primary concern remains the sustainability of that growth, particularly given Hims & Hers’ increasing reliance on GLP-1 medications, which are currently in high demand due to supply shortages from major pharmaceutical companies.
Hims & Hers has capitalized on the shortfall of weight-loss drugs such as Ozempic by offering compounded semaglutide products. This strategy has significantly boosted revenue, helping the company outperform expectations. However, analysts warn that this advantage may be temporary, as pharmaceutical giants Novo Nordisk and Eli Lilly are expected to scale up production in the coming months.
Overreliance on GLP-1 Medications Poses a Major Risk
A major concern raised by analysts is the growing dependence of Hims & Hers on a single product category. By the second quarter of 2025, GLP-1 medications could account for more than 50% of the company’s total revenue. This high concentration creates a potential vulnerability, as the demand for compounded versions of these drugs may diminish once Novo Nordisk and Eli Lilly resolve their supply chain challenges.
With the market for GLP-1 medications becoming increasingly competitive, Hims & Hers faces the risk of losing a substantial portion of its revenue. If pharmaceutical companies regain full control of the supply, the need for alternative providers like Hims & Hers could diminish rapidly, potentially leading to a sharp drop in sales.
Growth Projections vs. Expensive Valuation
Despite concerns over future revenue streams, analysts acknowledge that Hims & Hers is likely to continue growing. Projections suggest that the company’s revenue could double by 2027. However, the stock’s valuation remains a sticking point. Even with strong growth, the company is expected to generate only $0.86 per share in earnings by 2027.
At its current stock price, this translates to a forward price-to-earnings (P/E) ratio exceeding 77 times projected earnings. Such a high valuation raises doubts about whether the stock is priced appropriately, especially in a market where investors are increasingly cautious about overvalued growth stocks. While revenue expansion remains promising, the lofty valuation may deter new investors from entering at current levels.
Uncertainty Weighs on Stock Performance
Hims & Hers has experienced rapid success, but its business model now faces critical challenges. The company has benefited from the temporary supply gap in the weight-loss drug market, but its overreliance on GLP-1 medications could become a significant liability in the near future.
While growth projections remain optimistic, the high valuation presents a concern, making the stock a risky investment at current levels. If major pharmaceutical companies regain full control of the GLP-1 market, Hims & Hers could struggle to maintain its momentum. Investors appear to be responding to these concerns, as reflected in the recent stock decline.