FIGS, Inc. (NYSE: FIGS), a leading provider of medical apparel and accessories, has seen its stock price soar by 38% over the past three months1. However, some analysts and investors are skeptical about the company’s financial performance and growth potential. In this article, we will examine the factors behind FIGS’ stock rally and the challenges that it faces in the future.
FIGS’ Business Model and Competitive Advantage
FIGS was founded in 2013 by Heather Hasson and Trina Spear, who saw an opportunity to disrupt the traditional medical scrubs market with a direct-to-consumer model and a focus on quality, design, and social impact. FIGS offers a range of products, including scrubs, lab coats, jackets, masks, socks, and bags, that are made from antimicrobial, wrinkle-resistant, and moisture-wicking fabrics. FIGS also donates a set of scrubs to a healthcare worker in need for every set sold through its Threads for Threads program.
FIGS claims to have a loyal and engaged customer base, with over 1.8 million active customers and a 92% retention rate as of March 2023. The company also boasts a strong brand awareness and reputation, with over 1.5 million followers on Instagram and over 100,000 reviews on its website. FIGS leverages its online platform, social media presence, and influencer marketing to reach and attract new customers, especially millennials and Gen Z, who make up 80% of its customer base.
FIGS’ Financial Performance and Growth Prospects
FIGS went public in May 2023, raising $580 million in its initial public offering (IPO) at a valuation of $4.4 billion. The company reported impressive results for the first quarter of 2023, with revenue of $110.5 million, up 144% year-over-year, and net income of $14.1 million, up 1,050% year-over-year. FIGS attributed its strong growth to the increased demand for its products amid the COVID-19 pandemic, as well as its expansion into new categories and international markets.
FIGS expects to continue growing its revenue and profitability in the coming quarters and years as it plans to launch new products, enter new geographies, and target new customer segments, such as veterinarians, dentists, and students. The company also aims to capitalize on the growing global medical apparel market, which is projected to reach $16.1 billion by 2027, growing at a compound annual growth rate (CAGR) of 5.9%.
FIGS’ Risks and Challenges
Despite its impressive performance and outlook, FIGS faces several risks and challenges that could hamper its growth and profitability. One of the main risks is the intense competition in the medical apparel industry, which is fragmented and dominated by large players such as Cherokee, Landau, and Barco. FIGS also competes with other online retailers, such as Amazon and Walmart, as well as traditional retailers, such as Target and Kohl’s, that offer low-cost alternatives to their products.
Another risk is the potential decline in demand for its products after the COVID-19 pandemic subsides, as healthcare workers may reduce their spending on medical apparel and accessories. FIGS also relies heavily on a single supplier, Standard Fiber, for its fabric sourcing and manufacturing, which exposes it to supply chain disruptions, quality issues, and price fluctuations.
Moreover, FIGS has a low return on equity (ROE) of 4.4%, which indicates that it is not very efficient in generating profits from its shareholders’ investments. This is lower than the average industry ROE of 16% and suggests that FIGS may have difficulty sustaining its high growth rate in the long term. FIGS also has a high price-to-earnings (P/E) ratio of 88.22, which implies that its stock is overvalued compared to its earnings.
Conclusion
FIGS, Inc. (NYSE: FIGS) is a fast-growing and innovative company that has revolutionized the medical apparel industry with its direct-to-consumer model and high-quality products. The company has seen its stock price surge by 38% over the past three months as it reported strong revenue and net income growth for the first quarter of 2023. FIGS expects to maintain its momentum in the future as it expands its product portfolio, geographic reach, and customer base.
However, FIGS also faces significant risks and challenges, such as fierce competition, uncertain demand, supply chain dependency, low ROE, and a high P/E ratio. These factors could limit its growth and profitability and affect its stock performance. Therefore, investors should be cautious and diligent before investing in FIGS and monitor its financial and operational performance closely.
