Shark Bites: This Name With Huge Growth From Obesity Drugs Is Set for a Breakout
Money is rotating back into Nvidia (NVDA) , Alphabet (GOOGL) , and other big-cap technology names on Monday morning, but smaller-cap stocks are weak, and breadth is running about two to one negative. The Russell 2000 (IWM) is trading about 0.8% lower.
Smaller stocks have recently benefited from rotation, but the action tends to be very bumpy and uneven. Big-cap technology is still viewed as a safe haven even though the names have not been as strong of late.
Markets as strong as this one tend to stay sticky to the upside. Dip buyers have jumped in quickly, and support levels tend to hold. If the market doesn't make much progress for a while, then buyers may grow impatient and start to raise cash, but so far, we don't have any clear signs of that.
There are still quite a few good charts out there. Several I've highlighted recently, such as Redwire (RDW) and CompoSecure (CMPO) , still look good. However, I want to add a new name today, which I think could see some upside into its earnings report in November.
Hims & Hers Health (HIMS) is an online platform that connects patients with licensed medical professionals for a variety of health concerns, including support for sexual health, mental health, weight loss, hair regrowth, and skincare.
The company's recent strong growth is due in large part to obesity drug sales. Hims & Hers sells a compounded formulation of GLP-1 called tripeptide.
Because of the shortage of obesity drugs, compounders took advantage of the situation by developing new formulations, but there was concern that after the shortage ended, there would be restrictions imposed by the FDA. However, on October 18, the FDA stated that it did not plan to take any action against GLP-1 compounders while reevaluating Eli Lilly's (LLY) Zepbound drug.
There is a risk that this compounding business may be restricted in the future, but for now, it is growing at a tremendous pace, and that will be reflected in Hims & Hers' upcoming third-quarter report.
Even without the boost in sales from weight-loss drugs, Hims & Hers has very strong sales growth in other sectors of its market. Its app is among the top ten available at the Apple (AAPL) store in the health area.
In the most recently reported quarter, sales jumped 52% to $315 million. The company has just turned EPS positive in the last couple of quarters, and it is looking at EPS of $0.34 in 2024 and growth to $0.74 in 2025.
On Monday morning, Bank of America (BAC) raised its price target for HIMS to $25 and stated that data point to upside to revenue estimates when the company reports earnings after the close on November 4. On October 14, Jefferies also said that "all data signs point to a 3Q beat."
Technically, the stock has a cup-and-handle pattern that forms under resistance at around $23. With expectations of a strong quarterly report, conditions are good for a breakout in anticipation of the news.
I continue to look for good charts, but I'm making sure that I keep stops tight and am not giving back big gains.
At the time of publication, Rev Shark was long HIMS, RDW, CMPO and NVDA.