The market is hanging on to its gains since mid-June without succumbing to profit taking in one of the most hated rebounds in recent memory. This is quite impressive given the myriad worries equities face right now. Those worries include two quarters of GDP contraction in the US, Europe fast sinking into recession, the highest inflation rate in 40 years, rising interest rates and the continued conflict in Ukraine, among others.
My main concern about the economy and the markets is the deteriorating state of the consumer, considering that consumers drive about 70% of economic activity. The average consumer has lost buying power for 16 straight months now thanks to the ravages of inflation. In response, consumers are dialing back spending and making other changes to their behavior.
You can see this change in the drop in gasoline demand and the millions of consumers trading down in their buying habits. Some of those who used to shop at Walmart WMT are now going to dollar stores. I think this trend continues and I see further cutbacks in ordinary things such as the frequency of eating out and the number of subscription services, such as Netflix (NFLX) , that people maintain.
However, today we are going to profile two small-cap names where consumer spending is likely to be stickier.
Let's start with Hims & Hers Health Inc. (HIMS) , which provides health and wellness products and services, primarily for stigmatized disorders. Hims & Hers recently launched a new mobile app that allows patients to receive a medical consultation directly from the app within a few taps.
Hims & Hers is marching nicely toward profitability. Management raised guidance during its first-quarter conference call and then beat revenue expectations handily with second-quarter results. Subscription growth for the most recent quarter was 80% on a year-over-year basis and revenue growth came in at 87%. Hims & Hers has had a big run on the news, but I would add to my position on any pullbacks in the overall market.
Going out a bit on the risk scale, we have OptiNose Inc. (OPTN) , which markets a device called Xhance that was approved by the Food and Drug Administration for the treatment of chronic rhinosinusitis with nasal polyps in 2017. OptiNose should deliver about $90 million in net sales this fiscal year, representing an improvement of 20% over 2021.
Much faster growth could be in the offing. With Xhance's approved indication, it has a target market of around one million individuals in the United States. However, OptiNose is evaluating the device to treat chronic sinusitis. OptiNose recently disclosed positive results from late-stage studies for this affliction and is likely to submit a supplemental New Drug Application, or sNDA, to the FDA. The magnitude of change observed in the trials was similar to what led to approval for Xhance's first indication five years ago.
If this indication is approved, it will expand OptiNose's potential target market tenfold. The company is meeting with the FDA next month to hammer out regulatory submission criteria. With OptiNose's market cap of just $330 million, I don't see that potential approval priced into the shares as of yet.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider OPTN to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)