I'm usually not one to invest in apparel companies, and I generally avoid IPOs until they've been public for at least a few month. However, recent IPO FIGS (FIGS 0.63%) is different. The company makes scrubs, related accessories, and other performance apparel designed for healthcare professionals, and has built an extremely loyal clientele in just a few years as a public company.
I'm not just interested in FIGS because of its excellent products or impressive growth. A lot of IPOs have those two things when they go public. FIGS has the added attraction of extremely impressive profitability as well as a massive market opportunity. I'm planning to add some shares to my portfolio in the very near future, and here are some of the specifics that influenced my decision.
Image source: Getty Images.
Great products and impressive growth
For the most part, healthcare apparel hasn't had any significant innovation in decades. Scrubs are available in all sorts of fun patterns, but generally all use the same generic shape and materials. FIGS, on the other hand, produces designer scrubs, scrub jackets, lab coats, and other products designed for healthcare workers such as compression socks. The company's products are designed to not only be stylish, but to be more durable, comfortable, and functional than the competition.
In just a few years in business, FIGS has grown into the largest direct-to-consumer healthcare apparel company and has built a following of 1.5 million active customers (out of about 20 million healthcare professionals in the U.S.). And it continues to grow fast. FIGS reported year-over-year revenue growth of 138% in 2020 and has grown at an annualized rate of 146% since 2017.
Check out those margins
The words "profitable" and "IPO" don't typically go together, but FIGS is a big exception. In fact, the margins of FIGS' business look fantastic. The company produced a 72% gross margin last year and a 26% adjusted EBITDA margin. From the $263 million in sales FIGS did in 2020, the company's bottom line net income was nearly $50 million. That's an impressive profit margin from a rapidly growing apparel manufacturer.
How big can FIGS get?
FIGS did about $263 million in sales last year, and this might sound like a lot of scrubs and healthcare apparel. And it is certainly an impressive volume of revenue after just a few years of growth.
However, you might be surprised to learn that FIGS doesn't have a massive market share yet. In fact, the company commissioned a study that found $12 billion in healthcare apparel is sold in the United States every year. If we look globally, the market size is $79 billion. So, FIGS has just over 0.3% of the global healthcare apparel market and is growing at a triple-digit rate in a market that is mostly dominated by companies that sell products that aren't as good as what FIGS offers.
Also keep in mind that these figures include healthcare apparel only -- FIGS' growth ambitions include broadening its push into lifestyle apparel (things healthcare professionals wear when they're not at work). So, to answer the question of how big can FIGS get, I'd say many times its current size.
The bottom line on FIGS
Growth is great, but a rapid growth rate combined with great margins and a massive market opportunity is the trifecta. This founder-led business has built a massive base of customers, the bulk of which become repeat buyers. And that's why even though I'm typically not an IPO investor, I'm going to make FIGS the next addition to my own stock portfolio.
