Hims & Hers Health and AppLovin remain on my 'Stinky Six' list; Funny stories from my trip out of Ukraine
1) In yesterday's e-mail, I analyzed why shares of Hims & Hers Health (HIMS) tumbled. They were down as much as 29%, closing the day down 16%.
This was mainly due to a crackdown by the Food and Drug Administration and the Department of Health and Human Services on the company's sales of weight-loss drug semaglutide. It violates Novo Nordisk's (NVO) patent for the drug marketed under the brand names Wegovy and Ozempic.
This is a huge blow to Hims & Hers, as it is being sued by Novo Nordisk. It will also lose the source for nearly half its sales, as you can see in this chart from Sherwood News:
Yesterday, I concluded:
I'm actually considering removing HIMS from my "Stinky Six" (which would make it the "Frightful Five" maybe?) because I don't think this business is going away completely.
Well, I thought about it overnight and decided not to take HIMS off my list, as I think it has a lot more downside.
For more insight on this, I turned to my old friend and colleague Herb Greenberg, who has been writing about the stock for years. He generously shared a link to his article yesterday, which is normally behind a paywall.
He outlines how the company's balance sheet is full of red flags:
For its part, one thing Hims still has is a strong (albeit bruised) brand. But that can only take it so far, especially if Novo Nordisk goes forward, the level of damages could be enormous.
Trouble is, Hims had negative net cash, having flipped from debt-free and net cash positive to LOTS of debt...
At the same time, growth is slowing for the total number of subscribers, monthly revenue per subscriber, and total revenue...
Ditto for average revenue per user...
The reality is, much of that is tied to GLP-1 packages, which are facing stiff competition... as, arguably, is its entire business model...
Herb concludes:
Obviously, a stock as pummeled as Hims, which still has plenty of short interest, could be squeezed by the next headline, such as news of a "settlement" with regulators and/or Novo Nordisk dropping its lawsuit. Or... mere rumors that it's being acquired. Or word of a big investor. Or whatever is behind Door No. 3.
Beyond that, the risk remains high.
As I always say, any investment thesis that relies on the outcome of courts, Congress, or a regulatory body is not a thesis, but a game of chance.
In this case, no matter what happens with that part of the story, the main business is going in the wrong direction.
And let's not forget, I first raised my red flag when the stock was at these levels... and back then, the balance sheet was considerably stronger.
Interpret at will...
Thank you, Herb!
I would never short HIMS at this price because, as Herb correctly notes, it "could be squeezed by the next headline." (And regardless, I don't recommend shorting stocks in general.) But I would certainly continue to avoid it.
2) Another of my "Stinky Six" stocks, AppLovin (APP), moved in the other direction yesterday, rising 13%. And it was up as much as 5% this morning, though it's still down 27% from when I added it to the list on October 29.
The stock's recent jump is due to activist short seller CapitalWatch issuing an apology and retraction of its allegations linking a major shareholder to criminal organizations (no doubt in response to legal threats from the company).
I've never heard of CapitalWatch, nor had I seen its report, so yesterday's news doesn't change my opinion on the stock.
I've warned my readers a dozen times about AppLovin (archive here) and will be keeping it on my list of stocks to avoid. It's wildly overvalued, and other more credible short sellers have raised serious red flags.
3) As you read this, I'm on a flight to Milan, Italy to spend a week with a friend and former student of mine. Then I'll be going to Kenya for another two weeks to be with my parents.
(My dad is slowly recovering his strength from being in the hospital for 10 days last month with African tick bite fever. But, separately, he needs a procedure done on his prostate, which I want to be there for.)
Last night, I took a 17-hour sleeper train from Kyiv, Ukraine to Warsaw, Poland and have some funny stories to tell...
When I boarded the train and went to my cabin, I discovered that I was trapped on the top bunk with not even enough room to sit up or I'd bang my head (see the two righthand photos below):
My two roommates were a young mother and her 2-month-old baby girl (bottom left photo), who was adorable but was making all sorts of baby noises, so I knew I wouldn't be getting much sleep.
After I climbed up into the bunk (no easy feat!), the large can of Pringles in my bag popped open and the chips spilled all over the mother and her baby. I felt so bad! I crawled around on my hands and knees for 10 minutes trying to find every last crumb, as a half dozen other passengers watched the "idiot American."
But I had plenty more idiocy left in me...
Twelve hours after we left Kyiv, we stopped just over the border on the Poland side to get our passports checked. There was no cafe car on the train and, worse yet, I hadn't brought any food with me – only a bag of gummy candies and my spilled Pringles. I was so hungry that I looked in the bathroom trash can where I'd thrown out the chips – I swear I would have eaten them! But the trash had been emptied.
So I asked the Ukrainian train conductor if I could buy any food. She didn't speak a word of English, but I mimed putting food in my mouth and she understood. It turned out that she sold coffee, tea, and snacks.
I eagerly grabbed four snacks (top left photo above) and asked if I could pay with a credit card. She shook her head. "Can I pay in dollars?" She nodded and pulled out her phone, added up the prices, and showed me the total: 145.
But 145 what? Since we were in Poland, I googled "145 zloty in dollars." It came to $41.76.
Because I was so sleep deprived and had just woken up, I thought, "Wow, they really gouge you on this train – that's like Yankee Stadium prices! But I'm so hungry, I'll pay it." So I went back to my cabin, pulled out two $20s and a $1 bill, and offered it to her.
She looked at me like I was nuts and said a bunch of stuff I couldn't understand. I pulled out my whole wad of money (except for the $100s) and spread out a bunch of $1s, $5s, $10s, and $20s and said, "Take what you want."
She wouldn't touch it and said a bunch more stuff (no doubt including "you are the dumbest person I've ever met in my life").
Finally, it dawned on me that even though we were in Poland, she's Ukrainian and this is a Ukrainian train, so it was 145 hryvnia! So the total was only $3.36.
I gratefully handed her $5 and went back to my cabin to scarf down some nasty (but filling) biscuits!
Lastly, huge thanks to the many readers who wanted to learn about and/or support my humanitarian campaign to help Ukraine. If you'd like to learn more, simply go to the dedicated website my charity partner, TAPS (Tragedy Assistance Program for Survivors), has set up for me: www.taps.org/Tilson
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.