Rising Costs And Fierce Competition Will Hinder Future Prospects

Key Takeaways

• Reliance on a slowing core market and premium pricing increases vulnerability to demand shifts, competitive pressures, and cost-sensitive healthcare professionals.
  
• Limited product diversification and exposure to supply chain risks heighten uncertainties around sustained earnings growth and margin recovery.
  
• International expansion, product innovation, omnichannel engagement, and operational efficiency are driving growth, diversifying revenue sources, and supporting gains in both profitability and customer value.

Catalysts

Together with its subsidiary, FIGS Canada, Inc., operates as a direct-to-consumer healthcare apparel and lifestyle company in the United States and internationally.

• Slowing demographic growth in core US and developed markets for healthcare workers is expected to cap the future addressable market for FIGS, threatening sustained revenue expansion as younger worker cohorts grow more slowly and demand for medical uniforms plateaus.
  
• Intensifying competition from lower-cost, generic uniform brands and private label products will likely erode FIGS' pricing power and premium positioning, driving customers to cheaper alternatives and compressing future gross margins and net earnings.
  
• Persistent cost-of-living pressures on healthcare professionals are set to increase demand elasticity, making FIGS' premium-priced offering more vulnerable to volume declines, thereby restraining revenue growth and risking deleveraging of operating expenses.
  
• Ongoing international trade disputes and supply chain deglobalization will introduce higher input costs and additional compliance hurdles, particularly as new tariffs in FIGS' primary sourcing regions escalate, which is likely to further squeeze gross margins and restrict margin recovery efforts.
  
• Limited diversification beyond core scrubs and a high dependence on direct-to-consumer channels will exacerbate brand and product vulnerability, increasing long-term customer acquisition costs while leaving FIGS exposed to sharp downturns in e-commerce conversion or shifts in professional dress norms, ultimately undermining visibility into sustainable earnings growth.

FIGS Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on FIGS compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming FIGS's revenue will grow by 3.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 1.3% today to 6.4% in 3 years time.
• The bearish analysts expect earnings to reach $40.1 million (and earnings per share of $0.21) by about August 2028, up from $7.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 17.9x on those 2028 earnings, down from 140.8x today. This future PE is lower than the current PE for the US Luxury industry at 18.1x.
• Analysts expect the number of shares outstanding to decline by 4.44% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.46%, as per the Simply Wall St company report.

FIGS Future Earnings Per Share Growth

Risks

• FIGS is benefiting from a secular trend of strong and sustained growth in global healthcare employment, which is fueled by an aging population and persistent shortages of healthcare professionals; this underpins a growing long-term addressable market that could drive revenue expansion.
  
• The company is executing effectively on international expansion, with significant growth in regions such as Latin America, Europe, the Middle East, and Asia-Pacific, which increases the company's runway for top-line growth and reduces dependency on the US market for future revenue streams.
  
• The deliberate investment in product innovation-including enhanced assortment architecture, improvements to fit and function, and expansion into adjacent categories like outerwear, footwear, and accessories-positions FIGS to both increase average order value and capture greater share of wallet, enhancing both revenue and gross margin potential.
  
• The omnichannel strategy, including the rollout of new Community Hubs in major US cities and strong digital engagement, is driving improved customer acquisition and retention, which are translating to steady increases in active customer counts and should have a positive impact on revenue and lifetime customer value.
  
• Sustained improvements in operational efficiency, such as logistics optimization, strategic promotional restraint, and disciplined expense management, are translating into improved EBITDA margins and net income, demonstrating that earnings and profitability can grow even as the company invests in long-term initiatives.

Valuation

• The assumed bearish price target for FIGS is $4.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of FIGS's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $7.5, and the most bearish reporting a price target of just $4.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $621.8 million, earnings will come to $40.1 million, and it would be trading on a PE ratio of 17.9x, assuming you use a discount rate of 8.5%.
  
• Given the current share price of $6.22, the bearish analyst price target of $4.0 is 55.5% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.