Hims & Hers: A Value Investor's Look at the Moat and Margin of Safety

The recent turmoil with Novo Nordisk is a stark reminder of the regulatory and partner risks in this sector. Yet for a value investor, the critical question is whether the underlying business model possesses a durable competitive advantage, or moat, that can compound value over the long term. The evidence points to a platform with significant scale and a clear strategy for widening that moat, independent of any single drug partnership.

The core platform is robust. For the third quarter of 2025, the company reported nearly $600 million in revenue, a 49% year-over-year increase, powered by a subscriber base that grew to almost 2.5 million. This is not a one-product story. The model is built on recurring care, a classic sign of a sticky customer relationship. The abrupt termination of the Novo collaboration in June 2025 was a significant setback that dented confidence, but it did not dismantle this established customer base or the recurring revenue engine.

Management's strategic pivot is now focused on deepening that moat. The launch of Labs, a new holistic testing service, is a deliberate move to shift from a transactional drug platform to a more comprehensive health and wellness ecosystem. By offering data-driven insights and doctor-developed action plans, Hims & Hers aims to create a wider moat built on continuous engagement and personalized health journeys. This is the essence of a durable platform: moving from selling a product to owning a customer's health data and care pathway over time.

The bottom line is that the Novo issue is a short-term operational and reputational challenge, not a fundamental flaw in the economic model. The platform's scale, its 21% subscriber growth, and its ambitious expansion into services like Labs demonstrate a company actively building a more defensible business. For a value investor, the focus remains on whether this platform can compound value through deeper customer relationships and diversified offerings, a trajectory that the recent guidance cuts and strategic investments suggest management is still committed to.

The Competitive Threat: Margin Pressure and Catalysts

The competitive landscape is shifting, and with it, the pressure on Hims & Hers' pricing power and margins. The company's core growth story now faces a dual challenge from a major drugmaker and a retail giant. Novo Nordisk's recent expansion of its oral Wegovy pill, now broadly available in the U.S. at a starting price of $149 a month, directly targets the weight management segment where Hims & Hers has built significant scale. The move is particularly pointed because Hims was again left off Novo's partner list, a situation Citi analysts see as likely reflecting disagreements around Hims' compounded semaglutide strategy. This exclusion, coupled with the lower commercial pricing for insured patients, creates a clear headwind for Hims' GLP-1 business in 2026.

The threat is not just from Novo. Amazon Pharmacy has announced it will begin offering the Wegovy pill through insurance and cash-pay channels, including via its pharmacy kiosks. This entry by a retail behemoth into the prescription weight-loss market raises fresh questions about the durability of Hims & Hers' model beyond its reliance on high-growth categories like GLP-1. The immediate risk is concentration; the company's narrative for long-term compounding depends on its ability to diversify beyond these volatile, high-profile segments.

This competitive pressure lands on a business that is still scaling and, as a result, operating with thin margins. For the third quarter of 2025, the company reported an Adjusted EBITDA margin of 9-10%. That figure underscores the significant margin pressure inherent in a high-growth, high-investment platform. The company is trading near-term profitability for market share and customer base expansion, a classic growth investment trade-off. The question for a value investor is whether the widening moat from services like Labs can eventually support higher margins as the platform matures.

The next major catalyst to test this thesis is the company's Q4 2025 earnings report, scheduled for February 23, 2026. This report will be critical for two reasons. First, it will show how the business weathered the initial impact of Novo's oral Wegovy launch and Amazon's entry. Second, and more importantly, it will provide the full-year 2026 guidance that will signal management's confidence in navigating these headwinds. The market will be looking for a clear path to sustaining high subscriber retention and expanding the recurring-care model beyond weight loss, a path that the recent Labs launch is meant to support. For now, the stock's recent strength suggests some investors are looking past the near-term competitive noise, but the February report will determine if that optimism is justified.

Valuation and Margin of Safety

The current stock price of $42.18 sits at a premium to the company's own historical valuation. The trailing Price-to-Sales ratio of 5.18 is well above its median of 3.27 over the past decade. This multiple implies the market is paying for a very high probability of sustained, rapid growth. For a value investor, the critical question is whether this price leaves a sufficient margin of safety given the tangible risks now converging.

The bear case is clear and comes from a respected analyst. Citi maintains a 'Sell' rating with a $30 price target, explicitly citing the threats from Novo Nordisk's oral Wegovy and Amazon's entry into the prescription market. This $30 target represents a significant discount to the current price and suggests the firm sees the current valuation as too optimistic relative to the new competitive headwinds. The stock's recent strength, therefore, appears to be a bet on management's ability to navigate these challenges, not a reflection of current fundamentals.

Adding to the uncertainty is a legal overhang that has been reignited. The FDA's enforcement discretion for compounded semaglutide ended in February 2025, a regulatory shift that created a period of legal ambiguity for the company's core weight-loss business. While the company has continued operations, this issue remains a potential vulnerability that could resurface if the legal challenges are not fully resolved.

From a value perspective, the high P/S ratio means the stock has little room for error. It prices in a successful pivot to a diversified platform, with services like Labs driving higher margins and customer retention. Any stumble in subscriber growth, any further margin compression from competitive pricing, or any delay in the Labs monetization timeline could quickly erode the premium. The margin of safety here is thin because the valuation already assumes a smooth transition to a more defensible, higher-margin business model.

The bottom line is that Hims & Hers is not a classic value stock trading below intrinsic value. It is a growth stock priced for perfection. The current price demands flawless execution on its strategic pivot while simultaneously fending off aggressive competition. For a disciplined investor, this setup requires a high degree of conviction in management's plan and the durability of the new moat. Without that, the premium valuation offers little buffer against the known risks.

The Long-Term Compounding Question

For a value investor, the ultimate test is not quarterly beats, but the ability to compound capital over decades. Hims & Hers presents a classic tension between a high-growth narrative and the need for a durable, wide moat. The company's platform has achieved remarkable scale, but its long-term compounding potential hinges entirely on its success in diversifying beyond its current concentration in weight management. The launch of Labs is management's clearest signal that they understand this imperative. By shifting from selling a drug to offering a longitudinal health monitoring service, they are attempting to build a wider moat based on continuous data collection and personalized care pathways.

This is the essence of a compounding business: moving from a transactional model to one where the customer's relationship with the platform deepens over time. The goal is to increase lifetime value and retention, which in turn supports higher margins and reduces reliance on any single product. The company's own statement that 2026 is the year of the individual in healthcare frames this pivot as a strategic bet on a powerful industry trend. If successful, it could transform Hims & Hers from a weight-loss platform into a central hub for consumer health, a much more defensible and valuable asset.

Yet the path is fraught with risk. The primary threat to the compounding thesis is a sustained decline in average revenue per user (ARPU). The aggressive pricing from Novo Nordisk's oral Wegovy, starting at $149 a month, and Amazon Pharmacy's entry into the market create a clear headwind for Hims' core GLP-1 business. This price competition could compress margins and force a defensive pricing war, directly threatening the high-margin model that investors are paying for. The company's ability to offset this pressure through higher-margin services like Labs will be the critical metric.

From a value perspective, the current premium valuation offers little margin of safety for this long-term bet. The stock's price already assumes a smooth transition to a diversified, higher-margin platform. Any stumble in subscriber growth, any further margin compression, or any delay in Labs adoption could quickly erode the premium. The margin of safety here is thin because the valuation already prices in a successful pivot. For a disciplined investor, this setup requires a high degree of conviction in management's plan and the durability of the new moat. Without that, the premium valuation offers little buffer against the known risks. The long-term compounding question, therefore, is not about the next quarter, but about whether Hims & Hers can build a wider moat than a single drug before the competitive pressure erodes its current foundation.