Aging Global Population And E-Commerce Will Expand Professional Appeal

Key Takeaways

• Expansion in international markets and demographic trends are expected to fuel continued revenue growth and support premium pricing strategies.
  
• Enhanced direct-to-consumer efforts and focus on professional branding are driving customer loyalty, higher margins, and increased market share.
  
• Shifts in healthcare, rising competition, sustainability concerns, and evolving purchasing patterns threaten FIGS’ growth, direct-to-consumer edge, and long-term profitability.

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.

• FIGS is positioned to benefit from the sustained expansion in healthcare employment driven by demographic shifts, such as an aging global population, leading to a continually growing and replenishing customer base that should drive long-term revenue growth and support premium product pricing.
  
• The normalization of purchasing patterns post-COVID, with record high average order value and increased repeat purchases, signals the return of stable, recurring demand for essential professional apparel, which is expected to translate into higher customer lifetime value and reliable revenue streams going forward.
  
• International expansion is accelerating, with upcoming launches in Japan and South Korea and impressive double-digit growth in existing international markets, reflecting FIGS’ ability to tap into underpenetrated geographies and significantly expand its addressable market, likely providing a multi-year tailwind to top-line growth.
  
• The increasing focus among healthcare professionals on personal branding and professional appearance is fostering greater demand for high-quality and stylish workwear, enabling FIGS to maintain premium pricing, capture market share from traditional commoditized offerings, and support healthy gross margins and earnings.
  
• Investment in direct-to-consumer digital engagement and localization, as well as physical retail presence with Community Hubs, is strengthening FIGS’ connection with its core demographic, resulting in rising retention, efficient customer acquisition, and operational leverage that should support margin expansion and long-term earnings growth.

FIGS Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on FIGS compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming FIGS's revenue will grow by 2.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 0.2% today to 4.8% in 3 years time.
• The bullish analysts expect earnings to reach $29.0 million (and earnings per share of $0.17) by about July 2028, up from $1.2 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 bullish analyst cohort, the company would need to trade at a PE ratio of 33.2x on those 2028 earnings, down from 824.4x today. This future PE is greater than the current PE for the US Luxury industry at 16.4x.
• Analysts expect the number of shares outstanding to decline by 4.86% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.96%, as per the Simply Wall St company report.

FIGS Future Earnings Per Share Growth

Risks

• Increasing automation, AI integration, and a shift to telemedicine may reduce the long-term need for traditional frontline healthcare staff, shrinking FIGS’ core customer base and pressuring overall revenue growth.
  
• Heightened competition from large apparel firms and niche direct-to-consumer brands threatens to compress gross margins and increase customer acquisition costs, putting downward pressure on future net margins and earnings.
  
• Growing consumer and institutional emphasis on sustainability may conflict with FIGS’ heavy reliance on synthetic performance fabrics, potentially leading to reduced demand or reputational risk that could negatively impact future revenues.
  
• Consolidation among healthcare institutions could drive more bulk purchasing decisions, diminishing FIGS' direct-to-consumer model and likely resulting in lower pricing power and margin compression, impacting both top-line growth and profitability.
  
• Frequent product launches and inventory expansion efforts, alongside international market entry without sufficient brand equity, heighten the risk of inventory obsolescence and markdowns, increasing the likelihood of slower revenue growth and margin erosion over time.

Valuation

• The assumed bullish price target for FIGS is $5.5, which is the highest 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 bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $5.5, and the most bearish reporting a price target of just $3.75.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $601.6 million, earnings will come to $29.0 million, and it would be trading on a PE ratio of 33.2x, assuming you use a discount rate of 8.0%.
• Given the current share price of $6.0, the bullish analyst price target of $5.5 is 9.1% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.