While the gains/losses in the three major indexes were mostly muted last week, there was some interesting rotation out of the AI/Semiconductor theme and into recent underperformers … though this is hardly anything to write home about as it was just two days of this type of action.
By week’s end, the S&P 500 had gained 0.65%, the Dow had risen by 1.75%, and the Nasdaq had fallen marginally.
The Stock – Hims & Hers Health, Inc. (HIMS)
Hims & Hers Health is an online pharmacy, but instead of offering everything under the sun for as little as possible, the company has focused on a handful of in-demand areas for guys and gals, including things like hair loss, ED, dermatology, mental health and, more recently, weight loss. Importantly, more and more customers are chatting with one of the 650-ish physicians and nurse practitioners Hims has deals with to develop personalized medications that will work for them; of the 1.7 million users, 602,000 now take some sort of personalized medication, up from just 218,000 a year ago—and the personalized uptake is much higher among newer offerings like dermatology and weight loss, all of which leads to higher re-order rates. (Beyond that, the firm has many custom offerings, like ED mints or vitamin combos for hair health, that are popular.) Business has been solid for a while, with 40%-plus sales growth, rising EBITDA and a bottom line that’s recently lifted into the black—but what lit a fire under the stock recently was its announcement that it would offer compounded GLP-1 treatments (using the same active ingredient that’s used in Lilly’s and Novo’s offerings) for a reasonable price (as low as $200 a month). Obviously, hopes are high that many will choose to go this route instead of getting a prescription (especially given that they’re still capacity restrained) … and while they do that, many might pick up a few other meds from Hims, too. The business model is terrific, with 90% of all revenue recurring and with renewal/re-order rates healthy in the 80%-plus range, so it’s no surprise that all metrics (sales up 46% in Q1, earnings in the black, subscribers up 41%, 82% gross margin, EBITDA lifting off from low levels) are looking great. There is and will be competition, of course, but Hims has a big head start and its brand name and advertising programs should help. We like it.
Technical Analysis
HIMS changed character after Q4 earnings in February, which caused a monstrous gap up and a big run above 17 … but the following pullback, while starting normally, got out of control, dropping the stock a whopping 35% in six weeks! However, shares did steady themselves after earnings, and a couple of weeks later the GLP-1 news caused a buying rush even bigger than the prior one (nearly 10x volume), causing the huge run to 25 before the retreat late last week. It’s not for the rent money, but we’re OK nibbling here or on a bit more weakness with a loose stop.
Stop — 17.7
The Covered Call Trade
Buy Hims & Hers (HIMS) Stock at 23, Sell to Open July 23 Strike Calls (exp. 7/19) for $1.50, or a Net Price of 21.5 or less
Static Return: $150 per covered call (6.97%)
Breakeven: 21.5
Covered Call Return (if assigned): $150 per covered call (6.97%)
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve.
However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price, or 21.5 or less. (In this case 23 minus 1.50 = 21.5. Or another example is you could pay 22.9 for the stock and sell the call for 1.40, which also equals 21.5)
For every 100 shares of stock you buy, you can sell 1 call. For every 200 shares of stock you buy, you can sell 2 calls. And so on …
Open Positions
| Stock Name and Symbol | Price Bought | Current Stock Price | Stop | Option - Price of Call Sold | Current Option Price |
| Pinterest (PINS) | 41.5 | 44 | 35 | July 41 -- $2.75 | $3.00 |
| Oscar Health (OSCR) | 22.5 | 18 | 17 | July 22.5 -- $2.30 | $0.20 |
| Dutch Bros (BROS) | 36.35 | 39 | 31 | July 37.5 -- $1.65 | $2.50 |
| Sweetgreen (SG) | 30.45 | 28.75 | 25 | July 32 -- $2.10 | $0.70 |
| Howmet Aerospace (HWM) | 83.15 | 78.5 | 74 | July 85 -- $1.90 | $0.35 |
| Guardant Health (GH) | 30.75 | 29 | 24 | July 30 -- $2.40 | 1.25 |
The next Cabot Profit Booster issue will be published on July 2, 2024.
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