Investors are buying Hims & Hers Health (NYSE: HIMS) stock hand over fist after the mail-order drugs company reported an earnings miss but a sales beat last night. But they’re selling off shares of Eli Lilly (NYSE: LLY) and Novo Nordisk (NYSE: NVO), the latter of which is a Hims & Hers partner now.
As of 11:20 a.m. ET, Hims & Hers stock is surging to 11.2% and beyond, whereas both Eli Lilly and Novo Nordisk stocks are down 3.2%.
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Hims & Hers’ Q1 earnings
Hims & Hers reported a surge in sales in the first quarter of 2025, up 111% year over year at $586 million. (Wall Street only wanted $539 million, but isn’t complaining.) Subscribers grew only 38% year over year, meaning not only is Hims & Hers winning more clients, but both old and new customers are spending more as well.
The bad news is that its gross profit margin is slipping, down 9 full percentage points at 73%. The good news is that with so much sales growth, the margins almost don’t matter. Hims & Hers’ earnings more than quadrupled year over year to $49.5 million, and free cash flow grew right along with it, up more than fourfold to $50.1 million.
Granted, the earnings number worked out to only $0.20 per share, and Wall Street was hoping to see $0.23 per share. While technically an “earnings miss” though, it’s hard to complain about 4 times more profit.
Hims & Hers’ guidance
Turning to guidance, Hims & Hers’ forecast indicated sales growth will slow somewhat in Q2, ranging from $530 million to $550 million. This implies growth of 71% at the midpoint.
For the full year, Hims & Hers says sales will range from $2.3 billion to $2.4 billion, which works out to about 59% sales growth. Again, slowing, but again, still pretty impressive!
I’m less impressed by management’s failure to give guidance on what its generally accepted accounting principles (GAAP) earnings might look like, or how much free cash flow (FCF) it expects to generate this year. The only profits guidance given was in the form of malleable adjusted EBITDA numbers. Still, if earnings and free cash flow grow as fast as sales, Hims & Hers looks to be on the right track. For example, 59% growth from the $210 million in FCF generated last year would imply cash profits of more than $330 million this year.
Is Hims & Hers stock a buy?
At a valuation presently of $10.4 billion, this would imply that Hims & Hers stock currently sells for just 31 times current-year free cash flow. On its face, that’s not a “cheap” valuation, but when you factor in a 59% growth rate, it actually does look like quite a good bargain.
And what about Eli Lilly and Novo Nordisk stocks?
Toward the end of its earnings report, Hims & Hers pointed out that it’s targeting sales growth to $6.5 billion or more over the next five years. On the one hand, that works out to an annual sales growth rate of 23% through 2030, which is a bit less than 59%. For Hims & Hers to remain an attractive investment, therefore, it’s likely the company will need to keep raising its 2030 sales forecast, and beating on sales in its quarterly reports.
On the other hand, though, from the perspective of Eli Lilly and Novo Nordisk investors, Hims & Hers’ confident prediction of strong double-digit sales growth over the next half-decade strongly implies this is a competitive threat that’s not going away anytime soon.
If you’re looking for a reason why Eli Lilly and Novo Nordisk stocks might be reacting poorly to Hims & Hers’ good news, therefore, I suspect that’s the answer for why the larger drugmakers’ shares are going down: because in all likelihood, they’re going to have to share future GLP-1 profits with companies like Hims & Hers.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
