The injectable weight loss drugs known as GLP-1 agonists have taken the world by storm. And the stocks of the companies that make these drugs have rocked the market in recent years. However, an industry-wide shortage of these drugs opened the door for companies like Health for you and him (HIMS -0.83%) to remain competitive by offering mixed, cheaper versions from their teams.

Hims & Hers shares rose rapidly after the company announced it would launch compounded GLP-1 agonists.

However, there is speculation that the shortage may be coming to an end, and Hims & Hers has been back on track since announcing second-quarter results on August 5.

Is the recent drop in share price an opportunity to make the stock the best growth stock to buy? Or is Hims & Hers a fluke that has already had its 15 minutes of Wall Street fame?

The GLP-1 hype misses the point

Hims & Hers has attracted attention for selling pharmacy-made preparations containing semaglutide, the active ingredient in Novo NordiskOzempic from. Patients can buy these for much less money than the drug manufacturer charges. The well-documented demand for GLP-1 agonists shows that there is a clear growth opportunity for Hims & Hers that the market is focusing on.

Ironically, the market focuses on that and ignores the majority of the business. Hims & Hers is a telemedicine platform that sells prescription and over-the-counter products for various ailments, including skin, hair, sexual, mental health, and more. Hims & Hers generated $315 million in revenue in the second quarter, up 52% ​​year over year. How much of that came from GLP-1 sales? Just $15 million, or less than 5% of revenue. In other words, Hims & Hers is growing just fine even without GLP-1 sales. Sure, GLP-1 products might add fuel to the fire, but the fire is hot.

The stock’s recent volatility is likely due to concerns that the GLP-1 shortage is ending soon, which would theoretically prevent Hims & Hers from selling its compounded versions.

There are two reasons why this fear may be overblown. First, as I mentioned, Hims & Hers is doing just fine without GLP-1 agonists. The GLP-1-free weight-loss products it launched last year already generate $100 million in annual sales. Second, there is a precedent that compounded drugs tailored to each patient’s needs are not covered by manufacturers’ patents. Management believes this will allow it to continue selling compounded GLP-1 supplements even after any shortages end. Hims & Hers has appointed a former Novo Nordisk executive to its board who believes Hims & Hers will continue to sell compounded GLP-1 supplements. Management is confident enough that it has purchased a compounding facility to increase its production capacity.

But what if Hims & Hers is wrong? Well, Hims & Hers still sells branded GLP-1, so in a worst-case scenario, it could potentially convert compound users to the patented versions. It is unlikely that GLP-1 sales complete disappear.

The bottom line is that GLP-1 growth is excellent, but it is just the icing on the cake. Hims & Hers continues to grow rapidly, with or without compounded GLP-1 offerings.

Is an artificial intelligence company emerging?

The U.S. healthcare system is notoriously outdated and has a lot of moving parts. This could be an opportunity for a data-driven company like Hims & Hers to disrupt the market and gain market share. That’s not to say traditional healthcare companies aren’t leveraging technology, but Hims & Hers’ growth clearly shows that patients are looking for better experiences at lower prices and the company can leverage customer data to deliver them.

The company said that about 40% of subscribers received personalized treatments last quarter. It uses patient data to develop unique blends and dosages that provide patients with better treatment. This potential competitive advantage turns these medical products from commodities into attractive, unique offerings that patients can’t get anywhere else.

Additionally, management said the company is seeking a chief technology officer with expertise in artificial intelligence to help build its AI engine. Hims & Hers could use AI to analyze patient data and prescribe products instead of relying on human doctors. This could fuel growth.

Is the stock right for you?

Hims & Hers stock trades at just 28 times expected 2024 earnings. That’s incredibly cheap for a company that:

• The goal is to increase sales by 60% this year.
• Consistently exceeds analysts’ expectations.
• Initiation of a $100 million share buyback program because the company believes it has more cash than it needs to finance growth.
• The number of customers increased by 43% to 1.9 million in the second quarter compared to the previous year.

Hims & Hers would have to make a big mistake for earnings not to grow fast enough to justify a price-to-earnings ratio of 28. Yes, the company has that kind of growth momentum.

However, the stock is not for everyone; Hims & Hers is a classic case of high risk, high return.

It’s a young and growing company that faces numerous risks, including regulatory threats and possible litigation related to its compounding business. The stock’s potential upside is ideal for growth-oriented investors who can tolerate volatility and manage the risks they take. More conservative investors are probably better off looking elsewhere.