Title: Hims & Hers: Is This Dip a Buying Opportunity or a Value Trap?
Shares of Hims & Hers Health (HIMS) are currently trading around $45.53, marking a fourth consecutive day of declines. This pullback has investors wondering if it's a temporary dip or a sign of deeper trouble. The stock, after all, hasn't revisited its February high of $72.98, and rallies keep fizzling out around the $65 mark.
The Bullish Argument: Technical Indicators and Analyst Sentiment
There's a technical argument to be made for a potential bounce. According to Schaeffer’s Senior Quantitative Analyst Rocky White, HIMS is nearing its 200-day moving average's 20-day average true range (ATR). Historically, similar setups have led to short-term gains, averaging 18.2% one month later in three out of four occurrences. If history repeats itself, we could see HIMS back near $51.45.
But let's not get carried away. Past performance is not indicative of future results (a disclaimer everyone should tattoo on their foreheads). The sample size is small (four occurrences), and the "averaging 18.2% gain" masks the fact that one of those occurrences didn't result in a gain at all.
Another potential tailwind is the overwhelmingly neutral-to-bearish sentiment from analysts. Eleven out of 14 analysts covering the stock have a "hold" or worse rating. This suggests there's room for upgrades if the company delivers positive surprises, potentially triggering a rally. The question is, what will it actually take to get these analysts to upgrade their ratings? What specific metrics are they watching?
HIMS also has a Schaeffer's Volatility Scorecard (SVS) of 80 out of 100, indicating that the stock tends to outperform options traders’ volatility expectations. In plain English, this means the stock can be more predictable than the market expects, which could benefit savvy traders.
The Bearish Reality: Earnings History and Market Expectations
However, a closer look at HIMS's earnings history paints a less rosy picture. The stock has finished lower after four of its last eight earnings reports, including a significant 12.4% drop in August. This suggests that the company has struggled to consistently impress investors post-earnings.
And here's the kicker: the market is currently pricing in a substantial 17.1% move following the upcoming earnings release. This is higher than the stock's average next-day swing of 13.3%. Are investors setting themselves up for disappointment? It seems they are, but it's important to consider that this expectation could be a self-fulfilling prophecy.
I've looked at hundreds of these earnings previews, and this level of implied volatility always makes me nervous. It suggests a high degree of uncertainty, and uncertainty rarely translates into positive returns. I'd wager that the market is expecting big things from the company, and if they don't deliver, the stock could get hammered.
What’s more, the article doesn't mention why the stock price has been struggling. Is it increased competition? Concerns about profitability? Shifting consumer behavior? A lack of clarity on these fundamental drivers makes it difficult to assess the long-term prospects of HIMS. Some analysts believe the stock is still a buy, suggesting that it is a Struggling Healthcare Stock Ripe For Bull Notes.
Data Points to Caution, Not Conviction
In conclusion, while there are some technical indicators and sentiment factors that could support a short-term bounce in HIMS shares, the company's earnings history and the market's high expectations warrant caution. Without a clearer understanding of the underlying reasons for the stock's recent struggles, it's difficult to confidently call this a buying opportunity. The risk of a value trap (a stock that appears cheap but never recovers) is very real.
