Is Hims & Hers Stock an Undervalued Stock to Buy? | HIMS Stock Discounted Cash Flow Valuation

SUMMARY

Parkev Tatevosian, CFA, provides a detailed discounted cash flow valuation of Hims & Hers, examining its volatility, growth prospects, and risk profile. The analysis concludes that the current market price closely aligns with the calculated fair value, indicating the stock is neither overvalued nor undervalued.

MAIN POINTS

• Hims & Hers has experienced significant volatility in both its stock price and business fundamentals over the past year. [0:00]
• Discounted cash flow analysis is used to estimate the fair value of Hims & Hers, accounting for future free cash flow, risk, and the time value of money. [2:02]
• Projected free cash flow for Hims & Hers is expected to grow from $100 million in 2026 to $1.36 billion by 2034, driven by strong healthcare sector growth. [4:03]
• The company's weighted average cost of capital is calculated at 17.1%, higher than typical healthcare firms due to its volatility and position as a newer, smaller company. [6:01]
• A terminal growth rate of 5% is applied, resulting in a calculated fair value of $23.75 per share, nearly identical to the current market price. [8:02]

DETAILED ANALYSIS

Hims & Hers has stood out among tracked companies for its pronounced volatility, both in share price and in underlying business developments. Over the past year, the stock has experienced dramatic swings, with prices fluctuating between $15 and $35 per share, and a notable decline following October due to deteriorating relations with Novo Nordisk. This volatility has led to frequent changes in analyst ratings and has heightened investor uncertainty.

To assess whether the current market price reflects an undervalued opportunity, a discounted cash flow (DCF) model is employed, incorporating projections of free cash flow, risk, and the time value of money. The DCF approach discounts future cash flows to present value, recognizing the inherent risk and uncertainty in long-term forecasts, particularly for a company with such a dynamic business environment.

The analysis projects that Hims & Hers will generate approximately $100 million in free cash flow by 2026, with rapid growth expected to reach $640 million by 2029 and $1.36 billion by 2034. This optimistic outlook is underpinned by the expectation that the healthcare sector will outpace overall economic growth due to persistent unmet needs and ongoing innovation. The company’s unique approach and ability to attract millions of new customers position it to benefit from industry disruption and increased demand for healthcare solutions.

Despite the generally lower risk profile of healthcare companies, Hims & Hers carries a higher weighted average cost of capital (WACC) at 17.1%. This elevated rate reflects its status as a newer, smaller firm outside the traditional healthcare establishment, compounded by significant share price volatility. The WACC calculation incorporates a cost of debt of 6.12% after tax, a cost of equity of 19%—driven by a high beta of 2.44—and a risk-free rate based on the 10-year US government bond yield.

A terminal growth rate of 5% is applied to the long-term cash flow projections. Bringing these factors together, the fair value is calculated at $23.75 per share, closely matching the current trading price of $23.70. This alignment suggests that Hims & Hers is fairly valued at present, with neither a clear discount nor premium relative to its intrinsic value.

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