This growth stock just rocketed 43% in my ISA! What the heck is going on?

Investors who buy growth stocks have to be prepared for above-average volatility. Thatâs inevitable as the market grapples with how to value these types of businesses.

However, the manic whipsawing movements in Hims & Hers Health (NYSE:HIMS) have surprised me. Since I first invested last summer, the stock has been all over the place, regularly rising and falling 25% in the space of a few days.

Yesterday (9 March), it was up to its usual tricks by jumping over 40% in a single day. What on earth’s going on?

Huge short squeeze

Hims & Hers is a digital health platform that provides online consultations and prescriptions delivered directly to the door. It focuses on medical conditions that people often find awkward to discuss in person, including sexual health, dermatology, hair loss, mental health, and weight management.

It’s the latter that has been driving volatility. In February, the stock crashed when drugmaker Novo Nordisk announced that it was filing a lawsuit against Hims & Hers for selling compounded/personalised versions of its blockbuster weight-loss drug Wegovy. This included a cheaper $49 copy of Novo Nordisk’s new Wegovy pill.

Over the weekend, however, news came out that the pair had made up and will sell GLP-1 obesity drugs together. And while there will still be a limited number of personalised treatments available, these will not be marketed on the platform as before.

Hims & Hers CEO Andrew Dudum commented: “We see tremendous growth opportunities in the US with the expanding assortment of branded GLP-1 medications“.

The 41% surge likely represented a short squeeze, where short sellers bought shares to cover their positions, pushing the price higher.

Personalised medicine platform

What do I make of this? Well, the lawsuit has been dismissed, which removes a massive dark cloud hanging above the stock. Legal proceedings could have dragged on for years and cost the company a fortune, especially if it lost the case.

I also think this shows the growing reach of Hims & Hers’ platform in the US. It now has more than 2.5m subscribers, with revenue jumping approximately 59% last year to $2.35bn.

This included a more than doubling of revenue at its Hers business, which has launched hormone therapies for menopause and perimenopause. On the Hims side, it’s selling testosterone treatments.

The firm is also becoming a fully vertically integrated drug manufacturer by producing peptides in-house. Therefore, while the market obsesses about GLP-1s, I think the platform has far wider growth potential.

For instance, the opportunity in longevity could be substantial (more people are ‘biohacking’ to try and live longer while staying youthful). Hair loss, menopause and mental health are also very large global health and wellness categories.

The company has recently made a new acquisition to expand overseas, and is aiming for revenue and adjusted EBITDA of at least $6.5bn and $1.3bn, respectively, by 2030. The market cap today is $5bn.

The big risk here is that this growth never materialises amid rising competition. As such, this remains a smaller position in my overall portfolio for now.

But the stock is still 65% lower than August, even after yesterday. It’s trading at about two times sales, which isn’t particularly expensive for a high-growth stock. So it could be worth considering today as a small, higher-risk position in a diversified ISA.

The post This growth stock just rocketed 43% in my ISA! What the heck is going on? appeared first on The Motley Fool UK.

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Ben McPoland has positions in Hims & Hers Health. The Motley Fool UK has recommended Novo Nordisk. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.