If you'd like to become a billionaire, paying attention to how other billionaires invest is a sensible way to get started. Everyday investors can easily keep tabs on billionaire stock purchases because the U.S. Securities and Exchange Commission (SEC) makes them disclose their trading activity every three months.
In the latest round of disclosures, it's clear that a handful of funds run by billionaire investors bought shares of Hims & Hers Health(NYSE: HIMS) hand over fist.
During the three months that ended June 30, Israel Englander's Millennium Management fund more than doubled its position with a purchase of over 1.1 million shares. Sigma Investments, which is managed by John Overdeck and David Siegel, raised its stake by 145% with the addition of 1.5 million shares.
The stock peaked in June, possibly in response to demand from billionaire-led hedge funds. Investors who missed the boat could get in now at a much better price. Hims & Hers has been trading more than 40% below its latest high-water mark.
Why billionaires are bullish for Hims & Hers Health
Hims & Hers Health offers its customers a simple way to fill prescriptions for sexual health, dermatology, mental health, and weight-loss treatments. Instead of making an appointment and waiting for weeks to see their primary care physician (PCP), customers just have to complete a video visit on their phone and then wait for delivery.
Billionaire investors are likely attracted to Hims & Hers' subscription-based business model, which has been a huge success lately. The company finished June with 1.9 million subscribers, which was 43% more than it had a year earlier.
The subscription is attractive to Americans with high-deductible health plans. It isn't recommended, but many Americans can save heaps of money by avoiding their PCP and going straight to Hims & Hers instead.
In May, Hims & Hers began offering compounded semaglutide, the GLP-1 receptor agonist you probably know as Ozempic and Wegovy. This drug is still under patent-protected market exclusivity, but its manufacturer, Novo Nordisk, can't keep up with demand.
The Food and Drug Administration (FDA) allows compounding pharmacies to make and sell vials of patent-protected drugs during a shortage. This means Hims & Hers can offer its subscribers access to the weight-management treatment at a competitive price point.
Hims & Hers achieved profitability in the first quarter before it began selling compounded semaglutide. Sales of the weight-management treatment helped push net income to $13.3 million in Q2, which worked out to about 4% of total sales.
Reasons to avoid Hims & Hers Health
Novo Nordisk is dealing with an unprecedented burst in demand for a biologic drug. As one of the world's leading drugmakers, though, it's just a matter of time before it catches up. Investors expecting rapid growth for Hims & Hers driven by compounded semaglutide sales could be disappointed in a matter of months.
I don't have the data to prove it, but I strongly suspect that Americans are flocking to Hims & Hers as a way to avoid their PCPs. If this is the case, giant insurers that employ thousands of PCPs, such as UnitedHealth Group, have a lot of incentive to throw their weight behind a competing service.
The profits Hims & Hers have been reporting this year will attract competitors large and small. With hardly any barriers to entry in the telehealth space, expanding a thin profit margin could be more challenging than investors anticipate.
A buy now?
If Hims & Hers were still losing money, I'd tell investors to avoid this stock. Achieving profitability on a generally accepted accounting principles (GAAP) basis with less than 2 million subscribers, though, suggests helping folks avoid costly PCP visits is a great business.
Hims & Hers stock is way up this year, but expectations are still lower than you'd expect for a company that grew Q2 sales by 52% year over year. At recent prices, you can scoop up the shares for just 25.6 times forward-earnings expectations.
Even if semaglutide sales come to a halt later this year, Hims & Hers can continue growing at a pace that more than justifies its present valuation. If you have a high tolerance for risk, adding some shares to a diverse portfolio could be a smart move right now.
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Cory Renauer 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.
