The new bull market has passed by some businesses that are doing extremely well, and their shares haven’t risen.
For other businesses, macro conditions remain challenging, and this has been reflected in their stock prices.
Ultimately, when it comes to determining what businesses you want to add to your portfolio, price should never be the sole factor you consider. You also need to make sure the company has a strong underlying business, a definable moat or competitive advantage, and a path to future growth. The right stocks for your portfolio will also depend on your investing style, capital, and risk tolerance.
All that said, if you’re looking for intriguing stocks to buy that are trading at relatively meager valuations, there are some companies that could be compelling long-term investments. Here are two to consider as you add to your buy list.
1. Hims & Hers
Hims & Hers (NYSE: HIMS) operates a health and wellness platform that lets users access telehealth services, prescriptions, and over-the-counter products with ease. Users pay recurring subscription fees to have products and services delivered to them automatically. Moreover, users can enjoy free shipping to get those products sent straight to their home and in discreet packaging.
The company recently entered the glucagon-like peptide 1 (GLP-1) weight loss market, an area that has caught the attention of more investors recently with products like Novo Nordisk‘s Ozempic and Eli Lilly‘s Zepbound. Hims & Hers announced in May that it would be giving its users access to GLP-1 injections as part of its growing weight loss product portfolio, with costs starting as low as $199 per month. That’s a significant discount, giving a broader cohort of potential users access to GLP-1 products for a fraction of the cost.
Hims & Hers focuses on several core areas in addition to weight management, including sexual health, skincare, hair care, and mental health. Shares of the company are up more than 140% during the past 12 months. Still, the stock trades for a price-to-sales (P/S) ratio of just 4.5, reasonable for a growth stock.
In the first quarter of 2024, Hims & Hers reported revenue of $278 million, up 46% from one year ago. It also posted net income of $11 million after a net loss in the year-ago period, while adjusted earnings grew roughly 5 times from the prior year to $32 million. Free cash flow (what’s left of cash flow after capital investments) for the three-month period was $12 million, while operating cash flow totaled $26 million.
Importantly, subscriber growth is booming. Hims & Hers increased its subscriber base by a whopping 41% in the first quarter from the same period in 2023. It had a total subscriber base of about 1.7 million at the time of this writing.
Hims & Hers provides a wide-ranging virtual care platform that lets users access an extensive selection of prescriptions from the ease and comfort of home. It also has a predictable revenue model. Hims & Hers looks like an intriguing pick in the healthcare sector if you have some cash to spare right now.
2. Upstart
Upstart (NASDAQ: UPST) has experienced a very different growth trajectory than the previous pick on today’s list. While it’s trading for just a few dollars more per share than Hims & Hers, Upstart’s shares have fallen most than 30% during the past year and more than 90% from their peak in October 2021. Currently, the stock can be bought for a P/S of about 3.8 and a P/B of roughly 3.5.
Upstart operates a lending platform powered by machine learning and artificial intelligence (AI). It uses these technologies along with more than 65 million repayment events and 1,600 variables to assess lending risk, determine approvals, and facilitate loans that are mostly funded by outside partners.
Given the near nosebleed level that interest rates are still at, consumer appetite for loans is depressed and the cost of funding loans is higher for Upstart’s lending partners. Upstart’s platform is constantly evolving to align with the state of risk that the current macro environment provides, so when the risk of default is higher the company is going to be approving fewer loans.
Upstart operates in several core lending areas, including personal, auto, and home loans, all part of a broad total addressable market valued in the ballpark of $4 trillion. Loan volume recovered somewhat in the first quarter of 2024, with transaction volume rising 13% year over year to $1.1 billion. It also saw 80% sequential growth in smaller loans, a newer product on its platform.
Since Upstart makes most of its money from bank referral fees, platform fees, and loan servicing fees, all related to processing loans and driving originations through its lending partners, the rebound in loan volume helped total revenue rise 24% year over year to $128 million.
Clearly, Upstart’s business model relies heavily on the state of the broader economy. The issues Upstart is having aren’t because its business suddenly unraveled, but rather because it’s subject to forces that are largely outside of its control. For investors with a healthy appetite for risk and some spare capital on hand, the disruptive potential of this business with its AI-driven approach to lending may be a worthwhile value proposition to consider.
Should you invest $1,000 in Hims & Hers Health right now?
Before you buy stock in Hims & Hers Health, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Hims & Hers Health wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $791,929!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of July 8, 2024
Rachel Warren has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Upstart. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
2 Incredibly Cheap Growth Stocks to Buy Now was originally published by The Motley Fool
