Hims & Hers Health's IBD 50 Exit: A Cautionary Tale for High-Growth Telehealth Stocks?

The removal of Hims & Hers Health (HIMS) from the IBD 50—a list of top-performing growth stocks—has reignited debates about the sustainability of high-growth telehealth plays in a post-pandemic world. Once a darling of the digital health sector, Hims & Hers' recent earnings miss, margin pressures, and regulatory setbacks highlight the fragility of consumer healthcare stocks that rely on speculative momentum rather than durable business models. For investors, the question is no longer whether telehealth is a transformative force, but whether companies like Hims & Hers can adapt to a reality where growth alone is no longer enough to justify sky-high valuations.

The Rise and Fall of a Telehealth Star

Hims & Hers' ascent to the IBD 50 was fueled by its partnership with Novo Nordisk to distribute Wegovy, a blockbuster GLP-1 weight-loss drug. This collaboration drove a 125% surge in its stock price in 2024, propelling it into the spotlight as a leader in the telehealth and personalized medicine space. However, the partnership unraveled in early 2025 when Novo Nordisk accused Hims & Hers of selling counterfeit Wegovy and compounded semaglutide, violating FDA regulations. The fallout was immediate: a 30% single-day stock drop, a downgrade to “Hold” by Needham, and its removal from the IBD 50.

The company's Q2 2025 earnings report, released on August 4, 2025, further underscored its challenges. While revenue grew 73% year-over-year to $544.8 million, gross margins contracted from 81% to 76%, and free cash flow turned negative at -$69.4 million. These figures reflect a broader trend in the sector: rapid revenue growth often comes at the expense of profitability, particularly when companies prioritize expansion over margin discipline.

Margin Pressures: Operational Flaws or Strategic Investments?

Hims & Hers' management attributes the margin decline to investments in international expansion, lab testing capabilities, and personalized care infrastructure. While these initiatives align with the company's long-term vision of becoming a “comprehensive health management platform,” they also highlight a critical risk for high-growth stocks: the trade-off between reinvestment and profitability.

The telehealth sector as a whole is grappling with similar pressures. A 2025 analysis by Grand View Research notes that while the global telehealth market is projected to grow at a 24.68% CAGR through 2030, companies face margin compression due to rising R&D costs, regulatory scrutiny, and competition from tech giants like Amazon Clinic. For Hims & Hers, the challenge is whether its investments will translate into sustainable revenue streams or merely delay inevitable margin erosion.

Sector Rotation and the Post-Pandemic Reality

The removal of Hims & Hers from the IBD 50 is emblematic of a broader shift in investor sentiment. Post-pandemic, the market is increasingly favoring healthcare companies with defensible moats and scalable margins over speculative plays. This sector rotation is evident in the performance of peers like Teladoc Health, which, despite lower growth rates, maintains a stronger balance sheet and higher gross margins (79% in 2024).

For Hims & Hers, the path forward hinges on its ability to diversify beyond GLP-1 drugs. The company's recent announcement of a generic liraglutide product is a step in the right direction, but it remains to be seen whether this will offset its reliance on a single therapeutic category. Regulatory risks also loom large: the FDA's crackdown on compounded drugs and the potential for lawsuits could further erode investor confidence.

Valuation Dilemmas: Overhyped or Undervalued?

Hims & Hers' valuation remains a contentious issue. Using the Buffett-Inspired Valuation Method, its stock appears significantly overvalued at $64.16, while the McGrew Growth Valuation Method suggests it is undervalued. This divergence reflects the market's uncertainty about the company's ability to sustain its growth trajectory.

For investors, the key question is whether Hims & Hers' challenges are unique or part of a larger trend. The telehealth sector's valuation multiples have contracted since 2023, with the IBD 50's healthcare sub-index down 18% year-to-date in 2025. This suggests that the market is recalibrating expectations for high-growth stocks, particularly those with unproven business models.

Investment Implications

Hims & Hers' removal from the IBD 50 serves as a cautionary tale for investors chasing high-growth telehealth plays. While the company's subscriber base (2.4 million as of Q2 2025) and strategic pivot to international markets are positives, its margin pressures and regulatory vulnerabilities make it a high-risk bet.

For those with a long-term horizon, Hims & Hers could represent a “buy-the-dip” opportunity if it successfully diversifies its revenue streams and stabilizes margins. However, the broader sector's challenges—rising costs, regulatory uncertainty, and sector rotation—suggest that patience and risk tolerance are essential.

Conclusion

Hims & Hers Health's exit from the IBD 50 is not just a corporate milestone—it is a microcosm of the post-pandemic healthcare innovation landscape. The company's struggles with margins, regulatory compliance, and partnership dependency highlight the risks of over-reliance on speculative growth. For investors, the lesson is clear: in a sector where valuations are increasingly tied to fundamentals, the line between a missed opportunity and a warning sign is razor-thin. As the telehealth market evolves, only those companies that balance innovation with profitability will emerge unscathed.