Working in healthcare is not an especially easy job. Staying cool under pressure, paying attention to detail, and supporting patients through pain and fear are priorities during every shift — and shifts can be shockingly long.
Hospital shifts are often 12 hours, and that can stretch to 16 or 18 hours in a staffing crunch. In crisis situations, for example, during the COVID-19 pandemic, some providers work days at a time with little rest. Imagine, then, the added insult when mandatory uniforms are hopelessly uncomfortable.
FIGS co-founders/co-CEOs Heather Hasson and Trina Spear couldn’t stop thinking about this inexcusable state of affairs. While athletic brands put millions into the development of performance-enhancing apparel and footwear, doctors, nurses, and others in the healthcare industry were saving lives in stiff, scratchy scrubs that were clearly not designed to fit bodies of varying shapes and sizes. Hasson and Spear decided it was time for a change.
In 2013, they launched a company intended to disrupt the U.S. medical apparel market, worth roughly $12 billion at the time. Their line of comfortable scrubs rapidly grew in popularity, and the company held its IPO on May 27, 2021. Among other firsts, FIGS became the first public company to be led by two female co-founders.
It’s been less than a year since FIGS started trading on the New York Stock Exchange, and early investors have seen the value of their shares decline. Since its inception, FIGS stock is down by more than 35 percent. However, there are plenty of investors and analysts who consider FIGS stock a buy now. Are they right? Will FIGS stock go up?
When a Nurse Met a Blackstone Associate, FIGS Was Born
Heather Hassan was once a nurse, but she left the profession to pursue her passion for all things fashion. She was an entrepreneur at heart, and before she was inspired to reimagine medical scrubs, she founded a handbag company.
The idea for FIGS came to her while catching up with an old friend who was still working as a nurse. Hassan noticed that her friend’s scrubs were the exact same design — and made with the exact same material — that she herself had worn as a nurse 19 years earlier.
As Hassan began to research the medical apparel industry, she came upon another remarkable discovery. Scrubs were primarily sold in brick-and-mortar stores that kept regular daytime business hours — the very same hours that most in the medical profession work. There was a surprising lack of scrubs available online.
In contrast to Heather, FIGS co-founder Trina Spear was not experienced in nursing or fashion, but she had a set of skills that are critical for the launch of any business. She was an associate at the massive Blackstone investment firm, which currently has $881 billion in assets under management (AUM).
How Cutting-edge Fabric Revolutionized Medical Apparel
Together, the two developed a proprietary fabric that could withstand the stress of active wear while still feeling exceptionally comfortable. They named the fabric FIONx, and it boasts an array of attractive features. For example, FIONx is soft to the touch, and it makes mobility easier with four-way stretch capabilities.
FIONx is made with Silvadur antimicrobial technology to control odor, and it has the sort of moisture-wicking properties that were previously only available in high-end athletic apparel. Best of all, the fabric doesn’t wrinkle easily, which is a big time-saver for busy healthcare professionals.
FIGS isn’t stopping with its current FIONx technology. It is working to develop new fabrics with additional in-demand features and characteristics. One of its more recent additions is FIONlite — all the benefits of FIONx, but lighter. Better still, FIONlite is water-repellent.
Humble Beginnings: Selling Scrubs From Car Trunks
Hassan and Spear’s goal was loftier than simply providing a new type of uniform for medical professionals. Their mission was to make it easier for those in the healthcare industry to deliver the very highest standard of care for their patients.
To that end, they recreated the design of the entire garment, adding all the details that customers clamored for — additional pockets, better color selection, and options for carrying personal items like rings, wallets, and phones.
FIGS didn’t start in a garage like many of the Silicon Valley legends, but it has a compelling origin story nonetheless. When they were just getting started, Hassan and Spear sold their new and improved scrubs out of their car, bringing their product to prospective customers on-site at hospitals during shift changes.
Initially, FIGS struggled to persuade investors to put money into the company. It was hard to convince traditional funding sources that there was a market for specialized scrubs. They persisted, eventually getting their message in front of the right audience and successfully raising more than $75 million before FIGS’ IPO.
FIGS Top Line Growth: 59%
In 2017, FIGS’ revenue came in at $17 million. By 2020, that figure rose to $263 million — a compound annual growth rate (CAGR) of 146 percent — and FIGS was the biggest medical apparel company in the country. That’s impressive for a number of reasons, not the least of which is that $263 million represents less than 10 percent of the total addressable market in the United States — and just 2 percent of the total addressable market worldwide.
For its IPO, FIGS initially planned to offer shares at a price between $16 and $19, but those plans were upended by demand. The initial price was $22 per share, and FIGS stock went up approximately 40 percent on the first day of trading.
The IPO brought in $100 million for the company — money that it has reinvested in growing the business. FIGS’ growth strategy is clearly effective, as the company brought in more revenue during the fourth quarter of 2021 than it did for all four quarters of 2019 combined.
FIGS released its fourth-quarter and full-year 2021 financial results on March 8, 2022, and share prices immediately began to recover from their all-time low of $13.04 on March 4, 2022. Highlights included the following:
- Net revenues totaled $128.7 million, representing a year-over-year increase of 42.7 percent.
- Net income totaled $12.6 million or $0.06 diluted earnings per share.
- Adjusted net income totaled $18.6 million or $0.09 adjusted diluted earnings per share.
- Gross margin decreased by 110 basis points year-over-year to 69.9 percent.
- Adjusted EBITDA totaled $31.9 million, representing a year-over-year increase of $10.5 million.
- Adjusted EBITDA margin increased by 110 basis points year-over-year to 24.8 percent.
- Net revenues totaled $419.6 million, representing a year-over-year increase of 59.5 percent.
- Note: If the non-recurring related party sale of $4.2 million that occurred in Q3 2020 is excluded, net revenues increased 62.1 percent.
- Gross margin decreased by 50 basis points year-over-year to 71.8 percent.
- Net loss totaled $9.6 million or $0.06 diluted loss per share.
- Note: The loss can be attributed, in part, to an IPO-related pre-tax stock-based compensation expense of $50.4 million.
- Adjusted net income totaled $55.9 million or $0.30 adjusted diluted earnings per share.
- Adjusted EBITDA totaled $105.2 million, representing a year-over-year increase of $36.1 million.
- Adjusted EBITDA margin decreased by 120 basis points year-over-year to 25.1 percent.
Other key operating metrics disclosed in the report included the following:
- Active customers increased 46 percent year-over-year to 1.9 million as of December 31, 2021.
- Net revenues per active customer increased 11 percent year-over-year to $224.
- Average Order Value (AOV) increased 15 percent year-over-year to $113 for the fourth quarter and 12 percent year-over-year to $105 for the full year.
Management offered an optimistic outlook for 2022, suggesting net revenues will come in between $550 and $560 million. Of course, all of the financial details aside, what you really want to know is — will FIGS stock go up?
Will FIGS Stock Go Up?
Understanding whether FIGS stock will go up begins with a look at its customers. For now, they include anyone who wears scrubs for work, from veterinary technicians to neurosurgeons.
FIGS already has a commanding presence in the U.S. medical apparel market, and it is making decisive moves on an international scale. The global medical apparel market stands at $86 billion as of 2020, and that figure is growing as more healthcare professionals are being put to work in every corner of the world. Some estimates suggest it will be worth $140 billion by 2028.
Though FIGS has a wide selection of scrubs for all healthcare workers, regardless of gender, its most loyal customers are women. In fact, women make up around 83 percent of FIGS’ customer base at the moment.
That’s relevant to the company’s revenue potential because the healthcare industry is growing. More importantly, medical professions are some of the fastest-growing for women, which means — practically speaking — that FIGS’ target market is growing too.
FIGS fabric is unique because it balances comfort and durability — qualities that are of interest outside of the healthcare industry. The company is considering expanding its product lines to other industries that rely on uniforms — for example, food service and transportation — where people are anxiously awaiting alternatives to the options currently available.
Finally, FIGS doesn’t plan to limit its products to basic uniforms like scrubs. It is already expanding into categories that customers have requested like shields, masks, underscrubs, socks, and footwear — not to mention off-duty items like loungewear. The fact that busy professionals can make their purchases through the company’s direct-to-consumer e-commerce channel (thanks, Shopify!) only adds to the brand’s popularity.
Does all of that growth opportunity translate into FIGS stock going up? Most likely. Of the 10 analysts who reviewed the company, nearly all rated it a buy. Their median 12-month price target is $31 per share, which represents an increase of around 40 percent over the stock’s price at the end of March 2022.
When I ran a 10 year discounted cash flow forecast analysis on FIGS, I arrived at a fair market value of $32.11, suggesting close to 50% upside at the time of research.