1 Growth Stock Down 85% To Buy Now

The stock market crash started with the tech sector at the end of 2021, but now, in 2022, it has quickly spread to a variety of industries. Almost all stocks seem to be falling this year, and the direct-to-consumer scrub maker Figs (FIGS -2.37%) is no exception. Shares of the company have fallen about 85% from their all-time highs set a year ago.

However, there’s still a lot to love about figs. It is loved by consumers and its brand name is arguably the strongest in its niche. He could use it to capitalize on some lucrative opportunities in the future, which is why the business might be worth buying today.

Image source: Getty Images.

Why did stocks fall?

Figs’ differentiated products have attracted 2 million active customers. The company noticed that traditional scrubs are uncomfortable and ill-suited to the daily activities of healthcare workers. He has therefore created a high quality product which he presents as more comfortable, functional and durable than traditional scrubs.

A good number of consumers seem to agree, as the company generated more than $110 million in revenue in the first quarter. However, Figs has faced supply chain difficulties with many other consumer goods companies. It relies heavily on sea transport for its products, and with transport times sometimes exceeding 120 days, the company struggles to keep its basic items in stock.

As a result, Figs plans to shift more of its transportation to air rather than sea transit. This should alleviate the volatility of transit times and give consumers more reliable delivery speeds. However, this will hurt the profits of Figs. The company now expects an adjustment earnings before interest, taxes, depreciation and amortization (EBITDA) by 17% in 2022, down from its previous outlook of 20%. It will also reduce the company’s gross margin projections for the full year to around 67% to 68%, which is lower than its earlier guidance of 70% or more.

A 67% gross margin for any apparel company is still stellar. Same Lululemon Athletica and Nike do not maintain such a high margin; Lululemon only had a gross margin of 54% in the first quarter, and Nike’s was just 47% in its last fiscal quarter.

Where the figs could be in 2032

While Figs might be struggling in the short term, its brand reputation in the space is second to none. The company reported a Net Promoter Score – which measures customer satisfaction on a scale of minus 100 to 100, with a score of 70 considered “world class” – of over 80 through 2021.

The company also plans to use its brand name in other markets. First of all, Figs wants to expand internationally. In the first quarter, only 8% of revenue came from outside the US, but that could change given that the company just launched in seven European countries in April. If Figs succeeds in transplanting its brand to Europe, it could drive adoption, especially since the global healthcare apparel market is worth $79 billion.

Above all, its international activities are already gaining ground. In the first quarter, it climbed 59% year-over-year, showing promising signs of hope.

The other opportunity for Figs is its “art of living” offer. This includes out-of-work clothes like joggers or shoes so the figs can be the clothing brand for healthcare workers (and potentially others), both on and off the job. Like its international efforts, its lifestyle offer is starting to see success. In the first quarter, lifestyle revenue jumped 81% year over year, accounting for 18% of revenue.

How could Figs fail?

Figs are not a risk-free investment and could face short-term headwinds. Given the risk of recession, there are concerns about the drop in activity that the Figs could see. The company’s scrubs aren’t cheap, and healthcare workers could easily opt to buy another brand of scrubs in the event of an economic downturn.

However, this would be more of a short-term problem. The longer-term concern is that his mark will be permanently damaged. If it becomes unpopular or unfashionable to wear fig scrubs – whether because the company has lost its brand reputation or a competitor with more comfortable scrubs has arrived – that would be worrying.

That said, there was not much reason to believe that this long-term risk would materialize. Figs have exemplary popularity and quality, and there have been no signs of changing.

Why it’s a buy right now

At a valuation of less than three times sales, Figs shares look cheap. In fact, it trades at lower multiples than Lululemon and Nike, both of which are above 3.6x sales. It will be critical to monitor its customer satisfaction ratings as well as its gross margin and revenue expansion going forward. But if the company can continue to grow at a steady rate, you might want to consider adding a few stocks of that company to your portfolio.