Hims & Tesla

Authored By Louis Stevens

On a recent podcast episode, I noted that Hims & Hers Health of today reminds me of Tesla circa mid-2019.

Obviously, there are more differences between the two businesses than there are similarities.

But, with that being said, the experience of Tesla of mid-2019 sheds light on the experience of Hims in mid-2024.

On the aforementioned podcast, I noted three similarities. I'll briefly list them; then, I will add further context to the comparison.

1. Tesla began generating free cash flow in 2018 and 2019. Similarly, Hims has begun generating free cash flow in 2023 and 2024.
2. Tesla's market cap had essentially not moved in approximately five years prior to beginning its ascent on the heels of its newfound free cash flow generation in 2018 and 2019. Similarly, Hims' market cap has not moved materially from where it found itself in December of 2020, nearly four years ago. This consolidation period could poise it to rip higher in the years ahead.
3. In 2018 and 2019, Tesla's free cash flow generation and sustained growth in the preceding decade had proven its model; yet, it still had ample runway for growth. It was at the perfect intersection of valuation compression, stability created by its free cash flow generation, and ample room for further elevated growth. Similarly, Hims has an incredibly long runway for growth for each of its primary product categories, i.e., dermatology, sexual health, mental health, and weight loss.

Tesla 10x's After Stagnating For Five Years & Beginning To Produce Free Cash Flow In 2018

Tesla's Free Cash Flow Per Share & Price (Stock Prices Always Follow Free Cash Flow Per Share Over Time)

In late 2018, Tesla began generating free cash flow for the first time in the company's history. By 2019, it was clear that it had reached sustainable free cash flow generation. This was important because it proved the economics of Tesla's business model and provided a solid foundation for the business, atop of which the business could continue to grow at elevated rates within its massive TAM. The bedrock or foundation that was its free cash flow was the key element that poised its incredible ten fold ascent in the years following 2019.

Similarly, Hims began generating free cash flow in late 2023. As of today, it has proven that this free cash flow generation is sustainable; atop of which it can continue to grow at elevated rates within its giant TAM.

Hims Has Generated Free Cash Flow In Six Of Its Last Six Quarters; Seven Of Its Last Eight

Free cash flow is notable in the sense that it means a business is bringing in more cash than is leaving the business, and this represents strength and stability for the business overall.

And this is certainly a valid characterization of Hims as of today: stronger and stabler than it's ever been.

The free cash flow acts as the foundation for the company such that, irrespective of the market's tantrums and uncertainties, the business cannot be shaken at its core. Free cash flow generation represents a fundamentally sound, growing, and durable company.

In the case of Hims, it has $235M in cash on its balance sheet, $0 in debt, and now sustained free cash flow generation. This represents exceptional strength. It represents a solid foundation that no volatile share price can change.

What's more, as we know well, in accordance with the four points of equity value, stock prices always follow free cash flow per share over time, and this is also a notable element of Hims' free cash flow generation.

Hims' Free Cash Flow Per Share Growth (Also Included Gross Profit Growth, Which Has ~9x'd Over The Last Four Years Or So)

Four points of equity value applied to Hims:

1. Free cash flow per share (The Economic Characteristics of a Business, such as long term margins and dilution needed to execute the business.)
2. The growth thereof (For instance, Hims has ~100K weight loss subscribers. 100M citizens in the U.S. alone struggle with their weight, so we know there's ample runway for growth here.)
3. The durability thereof (Hims offers products that people can't go without, lest they lose their hair or lose their sex lives. It also offers "for life" products, such as fin/min.)
4. Our next best alternative (Hims generates free cash flow today, which is important in assessing the company through the lens of the time value of money.)

To close, the central goal of this Brief was simply to highlight that Hims is now free cash flow generative, holds $235M cash/$0 debt, and has a giant, giant runway for growth ahead as it siphons market share away from the legacy, mom and pop general physician practice in the U.S. (and, over time, internationally).

If you'd like an even deeper dive into Hims, along with compelling podcast material that will give you a confident and comprehensive understanding of the business, check out L.A. Stevens' Equity Research product, which I linked for you just below.

• An AI-Orchestrated General Physician At National Scale

Disclosures: 

L.A. Stevens has rated Hims & Hers Health and Tesla a "buy."