Direct-to-consumer (DTC) healthcare apparel and lifestyle company FIGS, Inc. (FIGS - Get Rating) administered a stellar IPO on May 27, 2021, with the stock’s price soaring nearly 29% that day, bringing the company’s  valuation to $4.57 billion. The stock has rallied 14.3% over the past month to close yesterday’s trading session at $38.85, driven primarily by investors’ optimism regarding FIGS’ growth prospects in the relatively inelastic healthcare apparel market. FIGS is based in Santa Monica, Calif.

However, even though FIGS has successfully carved out a market niche for itself, it faces competition from Amazon.com, Inc.’s (AMZN) Amazon Essentials brand and Jaanuu, Inc., among others.

So, with several companies in the same field adopting or accelerating their digital business models, FIGS could face stiff competition over the long run. So, we think the stock’s near-term prospects look uncertain.

Click here to checkout our Healthcare Sector Report for 2021

Here’s what I think could influence FIGS’ performance in the upcoming months:

Growing Demand for Scrub Suits

FIGS appears  to have disrupted the healthcare apparel market, elevating scrubs and creating premium products for healthcare professionals. According to a Research and Markets report, the global scrub-suits market is expected to grow at a 7.7% CAGR between 2020 – 2028. So, FIGS should keep benefiting.

The company develops proprietary and customized data solutions designed to optimize its product innovation, inventory analytics, marketing efforts, and operational efficiency. Furthermore, it offers several non-scrub offerings also, such as lab coats, compression socks, footwear, masks, and face shields, representing its wide portfolio of products.

Solid Financials

For the quarter ended March 31, 2021, FIGS’ top line soared 172.4% year-over-year to $87.08 million. The company’s gross profit for the quarter increased 156.5% year-over-year to $62.36 million. Its operating income came in at $16.06 million, which represents a 297.9% year-over-year rise. FIGS’ net income in the quarter increased 176.7% year-over-year to $11.44 million. Its EPS was  $0.61, up 154.2% year-over-year.

Stretched Valuation

In terms of forward EV/S, FIGS’ 19.01x is 182% higher than the 6.74x industry average. Its 16.97x forward P/S is 123.3% higher than the 7.60x industry average The stock’s 31.32x and 157.05x respective forward Price-to-Book and P/CF ratios are also higher than the 4.43x and 18.76x industry averages.

POWR Ratings Reflect Uncertain Near-Term Prospects

FIGS has an overall rating of C, which equates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. Among  these categories, FIGS has a C grade for Value in sync with its higher-than-industry valuation ratios.

The stock has a C grade for Growth also. This is consistent with analysts’ expectation that FIGS’ revenue will increase 35.7% year-over-year to $515.26 million in its fiscal year 2022, its EPS will remain negative for the quarter ended June 30, 2021. Furthermore,  its EPS is expected to decline at a rate of 2.2% per annum over the next five years.

In addition to the POWR Ratings grades we’ve just highlighted, we’ve also rated FIGS for Momentum, Stability, Sentiment, and Quality. Get all the FIGS ratings here.

FIGS is ranked #22 of 39 stocks in the B-rated Specialty Retailers industry.

If you’re looking for top-rated stocks in the same industry, with an Overall POWR Rating of Strong Buy or Buy, you can access them here.

Bottom Line

As stated in its S-1 filing, FIGS claims to have built the largest DTC platform in healthcare apparel, leading the industry in the digital transformation. But although  the company has strong financials, analysts expect its EPS to decline over the long run. Furthermore, it is heavily reliant on a limited number of third-party suppliers to provide materials to produce its products, and any disruption in the supply chain could negatively impact its operations. The stock looks overvalued at the current price level. So, we think it’s better to wait for the stock to trade at a reasonable price level before adding it to one’s  portfolio.

Click here to checkout our Retail Industry Report for 2021

FIGS shares fell $38.85 (-100.00%) in premarket trading Friday. Year-to-date, FIGS has gained 30.88%, versus a 17.29% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

More Resources for the Stocks in this Article