Hims & Hers Health: Navigating Legal Storms and Valuation Crossroads

Hims & Hers Health (NASDAQ: HIMS) has become a poster child for the risks of rapid growth in the telehealth sector, as its stock price and reputation face a reckoning over a class-action lawsuit and a shattered partnership with Novo Nordisk. The company's legal woes, which sent its shares plunging 34% in June 2025, now cast a shadow over its valuation and long-term prospects. For investors, the path forward hinges on deciphering how legal outcomes will reshape profitability, investor confidence, and the company's ability to pivot in a regulatory minefield.

The Legal Crossroads: A High-Stakes Timeline

The lawsuit, Sookdeo v. Hims & Hers Health, accuses the company of misleading investors about its collaboration with Novo Nordisk and its compliance with FDA regulations. Specifically, plaintiffs allege Hims & Hers sold knockoff versions of Wegovy, a weight-loss drug, using unapproved active ingredients sourced from China—a violation of FDA rules. The case, now in its early stages in California federal court, has a pivotal deadline: August 25, 2025, when lead plaintiff motions must be filed.

A ruling against Hims could trigger costly settlements, legal fees, and operational overhauls. Even if the company wins, the prolonged litigation will drain resources and deter investors. Analysts at Truist and Morgan Stanley warn that the case could drag on for 18–24 months, further depressing the stock.

Financials: Growth vs. Growing Pains

Despite the turmoil, Hims reported stellar Q1 2025 results:
- Revenue: $586 million (+111% YoY), driven by a 38% surge in subscribers to 2.4 million.
- Adjusted EBITDA: $91 million (+157% YoY), with margins expanding to 16%.
- Cash: $323 million, providing a buffer against legal costs.

However, cracks are emerging:
- Gross margins: Fell 3% sequentially due to scaling costs for GLP-1 drugs like Wegovy.
- Marketing spend: Remains elevated at 39% of revenue, despite improvements year-over-year.
- Q2 guidance: Revenue is projected at $530–550 million, reflecting a one-time drop as subscribers transition off compounded semaglutide.

Valuation: Overpriced for a Legal Battle?

Hims' valuation is under siege. Key metrics paint a cautionary picture:
- P/E ratio: A stratospheric 210x based on Q2 2025 EPS estimates ($0.22). This is far above peers like Teladoc Health (TDOC), which trades at ~30x.
- EV/EBITDA: Even using the Q2 EBITDA midpoint of $70 million, the EV/EBITDA ratio exceeds 30x—a premium for a company facing existential legal threats.
- Analyst targets: The average one-year price target is $48, but GuruFocus estimates a 17% downside to $35.

Investors must ask: Is this a growth stock or a regulatory time bomb? The answer lies in the lawsuit's resolution.

Risks: The Worst-Case Scenarios

1. Settlement Costs: If Hims loses, settlements could exceed $100 million—significant for a $750 million market cap firm.
2. Regulatory Overhaul: The FDA may force Hims to shutter its compounding operations or face fines for using unapproved APIs.
3. Lost Partnerships: The Novo Nordisk split highlights reputational damage; future collaborations with pharma giants may evaporate.

Opportunities: Pivoting Amid the Fallout

Hims isn't dead yet. Key opportunities exist if the company can navigate this crisis:
1. Legal Win: A dismissal or favorable settlement could unlock pent-up demand, pushing shares back toward pre-lawsuit levels.
2. Operational Shifts: Focusing on FDA-compliant therapies (e.g., mental health or hair loss) could rebuild trust and stabilize margins.
3. Subscriber Retention: Its 2.4 million user base is a valuable asset if Hims can diversify offerings without regulatory risks.

Investment Advice: Proceed with Extreme Caution

• Hold for now: The stock's volatility and unresolved legal risks justify a “Hold” rating. Wait until the lead plaintiff deadline passes or a settlement emerges.
• Watch liquidity: Hims' $323 million cash pile is a cushion, but prolonged litigation could strain reserves.
• Compare peers: Consider safer bets like Teladoc or Oscar Health, which avoid regulatory gray areas.

Conclusion: A High-Wire Act

Hims & Hers is performing a high-wire act, balancing aggressive growth with legal and regulatory landmines. While its Q1 results hint at underlying strength, the lawsuit's outcome will decide whether the company can survive—or if it's destined to become a cautionary tale. For investors, patience is critical. Until the legal fog clears, HIMS remains a high-risk, high-reward proposition best suited for speculators willing to gamble on a regulatory Hail Mary.

Data as of June 2025. Past performance does not guarantee future results.