Hims & Hers Lawsuit Fallout: Contrarian Buy or Short Seller's Play?

The telehealth company Hims & Hers Health, Inc. (HIMS) faces a pivotal moment as it grapples with a securities fraud lawsuit that has already triggered a 34% stock plunge. With a critical August 25 deadline looming for investors to join the class action, the question remains: Is this a rare opportunity to buy a beaten-down stock or a risky short bet on further collapse? Let's dissect the lawsuit's implications, the stock's trajectory, and the calculus investors must weigh.

The Legal Storm: A Partnership Gone Sour

The lawsuit, filed by shareholders in late July 2025, alleges Hims & Hers misled investors about its collaboration with Novo Nordisk, the maker of Wegovy®, a blockbuster weight-loss drug. Specifically, the complaint claims the company falsely asserted it could legally sell both Wegovy and compounded semaglutide—a knockoff version—through the partnership. When Novo Nordisk terminated the deal on June 23, accusing Hims & Hers of “illegal mass compounding and deceptive marketing,” the stock cratered from $64.22 to $41.97 in a single day. The crux of the fraud claims lies in the company's alleged failure to disclose risks around the partnership's stability and its non-compliance with FDA rules governing compounded drugs.

Stock Performance: Volatility Amid Uncertainty

Post-lawsuit, HIMS's stock has oscillated between hope and despair. Let's look at the data:

The June 23 crash is stark, but July's trading shows a partial rebound. The stock closed July 8 at $48.96—up 2.1% from July 1's $47.96—but still far below its pre-lawsuit highs. High trading volumes on July 1 (35.7 million shares) and July 8 (30.5 million) suggest investors are testing the waters, but skepticism persists. The question is: Is this a bottom, or just a dead cat bounce?

Risk Factors to Consider

1. Legal Uncertainty: The lawsuit seeks to hold Hims & Hers liable under Sections 10(b) and 20(a) of the Securities Exchange Act, which could lead to significant damages. While settlements in such cases often range between 10–30% of losses, the outcome hinges on how courts view the company's intent and the materiality of its misstatements.
2. FDA Compliance: The FDA's involvement adds another layer of risk. If Hims & Hers is found to have violated drug compounding regulations, it could face fines, operational restrictions, or even loss of licensure.
3. Partnership Recovery: Rebuilding trust with Novo Nordisk or finding alternative drug partnerships is critical. However, the damage to Hims & Hers' reputation may deter future collaborations.

Contrarian Buy or Short?

The Case for a Contrarian Position:
- Settlement Potential: If a settlement is reached before the case goes to trial, it could lift uncertainty and stabilize the stock. Analysts estimate the total losses for class period investors exceed $1 billion, but a 15–20% recovery could be realistic.
- Valuation: At current levels, HIMS trades at a steep discount to its pre-lawsuit valuation. If the company can pivot to compliant drug offerings or secure new partnerships, the stock could rebound sharply.
- Deadline Strategy: Investors joining the class action by August 25 retain upside from any settlement while holding shares. A “buy and hold” approach combined with litigation participation could maximize gains.

The Case for Shorting:
- Ongoing Legal Costs: Defense expenses and potential penalties could drain cash reserves, especially if the case drags into 2026.
- Regulatory Risks: The FDA may impose stricter oversight, limiting Hims & Hers' ability to profit from compounded drugs.
- Loss of Trust: Investors and customers may flee, exacerbating revenue declines.

Actionable Strategies for Investors

1. For Bulls:
2. Buy shares before August 25 and join the class action. This positions you to benefit from a settlement while betting on operational recovery.
3. Set a stop-loss at $40 to guard against further declines.

4. Monitor FDA communications and settlement negotiations closely.

5. For Shorts:

6. Initiate short positions now, but cap exposure to 5–10% of a portfolio.

7. Watch for negative catalysts like adverse court rulings or regulatory actions.

8. Neutral Play:

9. Use options to hedge. A put option strategy could protect against downside while allowing limited upside exposure.

Final Analysis

Hims & Hers presents a high-risk, high-reward scenario. The stock's recent volatility reflects investor indecision between the allure of a turnaround and the fear of deeper legal fallout. While contrarians might find value in the shares, the path to recovery is fraught with regulatory and reputational hurdles. Investors must decide: Is the potential upside from a settlement-driven rebound worth the risk of further declines? The August 25 deadline isn't just a legal milestone—it's a strategic crossroads for shareholders.

As the saying goes, “Buy fear, sell greed.” In this case, the fear is justified, but so is the potential reward. Proceed with caution, and keep a close eye on that August date.