FIGS, the healthcare apparel company, has experienced stagnant growth in the past six months, with its stock price remaining flat at $5.47, underperforming the S&P 500’s 12.4% gain. At Hyperloop Capital Insights, we believe a cautious approach to FIGS is warranted. This analysis outlines three key reasons why FIGS may present investment risks and suggests alternative opportunities for discerning investors.
Table Content:
Underwhelming Performance Indicators for FIGS
FIGS, founded in 2013 and known for its trendy medical apparel, has achieved significant brand recognition. However, recent performance indicators raise concerns about its long-term investment potential.
1. Sluggish Active Customer Growth Signals Weak Demand
Revenue growth hinges on price and volume, with active customer count being a crucial volume metric for companies like FIGS. While price increases have limitations, volume growth indicates sustainable demand. FIGS reported 2.67 million active customers in the latest quarter, reflecting a two-year average year-over-year growth of 14.6%. This lags behind the sector average, suggesting potential challenges in maintaining or accelerating growth without resorting to price reductions or significant product enhancements, both of which could impact near-term profitability.
2. Declining Earnings Per Share (EPS) Trend
Long-term EPS trends reveal the profitability of a company’s growth. FIGS has experienced a concerning 7.8% annual decline in EPS over the past five years, despite a 37.3% revenue increase. This indicates diminishing profitability on a per-share basis as the company scales, raising questions about its sustainable growth model.
3. Unfruitful Growth Initiatives and Low Return on Invested Capital (ROIC)
Evaluating the capital efficiency of growth is crucial. ROIC measures a company’s operating profit relative to its invested capital (debt and equity). FIGS has demonstrated a mediocre track record in generating profitable growth, with a five-year average ROIC of only 1.9%. This falls below the typical cost of capital for consumer discretionary companies, suggesting inefficient capital allocation and potentially unsustainable growth strategies.
Conclusion: Exploring Superior Investment Alternatives
Based on our analysis at Hyperloop Capital Insights, FIGS fails to meet our investment quality standards. The current stock price of $5.47, reflecting a forward price-to-earnings ratio of 48.4x, indicates significant optimism already priced in. We believe more compelling investment opportunities exist elsewhere. Investors seeking long-term value creation should consider companies with robust growth, strong profitability, and efficient capital allocation. Hyperloop Capital Insights recommends exploring alternative investment options that demonstrate stronger fundamentals and offer more attractive risk-reward profiles.
