FIGS Has Popular and Trendy Apparel, but Is Overvalued

The company has created a loyal following in the medical world, but the stock is expensive

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Aug 29, 2022
  • FIGS designs and markets stylish medical apparel such as scrubs and lab coats.
  • The company has shown strong sales growth, but is facing cost and supply chain issues.
  • FIGS stock sells at elevated valuation multiples despite a sharp decline in the past year.
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FIGS Inc. (

FIGS, Financial) operates as a direct-to-consumer health care apparel and lifestyle company in the U.S. It designs and sells health care apparel such as doctor and nurse scrubs and other non-scrub offerings, including lab coats, under scrubs, outerwear, activewear, loungewear, compression socks footwear and masks. It also offers sports bras, performance leggings, tops, super-soft pima cotton tops, vests and jackets. The company markets and sells its products through its digital platform, which consists of a website and mobile app.

The company has tried to combine the recent athleisure trend and apparel style with traditional medical garments. FIGS products are considered more stylish and form-fitting, appealing to a younger generation of medical professionals. The company has built a community and lifestyle around an established field and revolutionized the large and fragmented health care apparel market by becoming the industry’s category-defining apparel and lifestyle brand.

Founded in 2013, FIGS went public in May 2021 at a price of $22 per share and soared to a high of $50.40 during the 2021 stock trading frenzy timeframe. The company currently has a market capitalization of $1.9 billion and is expected to generate over $500 million in revenue this year.


Financial review

The company reported second-quarter results on Aug. 4. Revenue was $122.2 million, an increase of 20.9% year over year due to increased orders, a strong retention of existing customers and new customer acquisition.


The gross margin was 70.6%, which decreased 270 basis points compared to the prior-year period on the back of increased ocean and air freight rates, an increase in freight-in driven by higher utilization of more expensive air freight and an overall product mix shift.

Operating expenses were $76.9 million, a decrease of 27.6% year over year largely due to lower stock compensation expenses related to the company’s initial public offering. Selling and marketing expenses increased 37%, which was a rate higher than revenue growth. As a result, adjusted Ebitda decreased 19.9% to $21.5 million and the adjusted Ebitda margin decreased to 17.6%.

The company maintains a solid balance sheet with $170.2 million in cash and no long-term or short-term debt. Free cash flow was negative for the first six months of 2022 with an operating use of cash of -$26.50 million.


FIGS is still in growth and expansion mode and spends 39% of revenue on selling, marketing and advertising expenses, which is significantly more than mature apparel companies. Therefore, its operating and margins are low at this time.

Consensus analyst earnings per share estimates are 16 cents for 2022 and 26 cents for 2023, which puts the company trading at a very elevated price-earnings ratio. The enterprise value/Ebitda ratio is also elevated at approximately 17 times.

The GuruFocus discounted cash flow calculator is no help either and comes up with a fair value of approximately $6.80 per share with 16 cents as the earnings per share starting point and 15% long-term growth. Using a generous 10-year growth rate of 20%, the value increases to $8.

The company does not pay a dividend and has no plans to in the foreseeable future.

Guru trades

Gurus who have purchased FIGS stock recently include

Ray Dalio (Trades, Portfolio) and George Soros (Trades, Portfolio). Gurus who have reduced our sold out of their positions include Steven Cohen (Trades, Portfolio) and Chuck Royce (Trades, Portfolio).


FIGS has created an interesting growth niche in the underserved medical apparel industry and seems to have created a loyal following and devoted community. However, at some point, the company needs to earn a return on capital above its cost of capital in order to generate strong returns for investors. Despite its precipitous drop from 52-week highs, the company still appears to be overvalued. An entry point close to the mid-single levels is warranted in order to create a margin of safety.

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I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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