The stock market is known for its volatility, but it might as well be giving investors whiplash because of how fast it's moving up and down. The Nasdaq Composite index sank in the first three months of 2022, falling 20% by mid-March. After that, it shot right back up. As of this writing, it's only down 10% year to date.
Predicting where the market will go over the next week or month is next to impossible, so buying companies that you feel confident in for the next five years is often the best strategy. With this in mind, you should have a watch list full of stocks that you are ready to buy no matter what the stock market does next.
My watch list is chock-full of companies right now, but Figs (FIGS -0.53%) and Fiverr (FVRR 2.39%) are near the top of it.
Image source: Figs.
1. Figs
Figs is uniquely positioned with one of the strongest brands in a niche market. The company sells hospital scrubs for nurses and other healthcare professionals, but it carries two characteristics: a strong brand name that no competitor has been able to reach as well as a gold-standard product in the industry. The company's Net Promoter Score (NPS) -- which measures customer satisfaction on a scale of -100 to 100, with a score of 70 being considered "world-class" -- was over 80 at the end of 2021. This is phenomenal, beating out even some of the strongest brands. Peloton only has an NPS of 68.
Figs' scrubs are much higher quality than its competition. The company realizes that its customers wear its products every day, often for 10 or more hours, so it has prioritized comfort and utility. As a result of this quality and brand name, Figs has been able to price its products at a pretty penny: The company achieved a nearly 72% gross margin in 2021.
To be clear, Figs does face stiff competition and pushback from price-sensitive buyers. Jaanuu, another scrubs maker, can be more attractive to the price-sensitive consumer, and with Figs' scrubs being a few dollars more expensive than those of its counterpart, that could hurt the business. Still, Jaanuu has yet to reach Figs' level of brand recognition, which is a major selling point.
The company's adoption by healthcare workers has been nothing short of impressive. Figs had 1.9 million active customers in Q4 2021 who generated nearly $420 million in revenue for the year, up 60% from a year ago. And now, the company has expanded into a wider array of products, offering everything from outerwear to lifestyle products like sweatshirts and joggers that can be worn outside of work. Lifestyle products only represented 17% of revenue in Q4, but management believes this segment is just getting started.
With the U.S. healthcare apparel market worth $12 billion, Figs still has plenty of room to grow. The company also has aspirations to expand internationally, which could push its opportunity to $79 billion.
There is no doubt that the company's potential is immense, and considering Figs is trading at just 8.6 times sales -- not much higher than other apparel companies like Lululemon -- it's near the top of my watch list, and it should be on yours too.
2. Fiverr
Fiverr has been hammered recently, falling more than 77% from its all-time high set in January 2021. The company is one of the leading platforms for connecting freelancers with businesses, so it naturally gained popularity during the COVID-19 pandemic.
However, as the world began to reopen, many investors lost faith in the company, thinking that demand for its services would fall. On the contrary, Fiverr has seen continued success. Fiverr posted record revenue of $298 million for 2021, which grew a staggering 57% from 2020.
A driver of this was the company's take rate increase -- the portion of revenue that Fiverr keeps to itself from every transaction -- which is now over 29%. Considering that active buyers on the platform grew 23% year over year at the end of 2021, the value that Fiverr brings to its buyers seems to be worth the price hike.
The company did lose $65 million in 2021, but this is not as worrisome as one might think. Its $35.4 million in 2021 free cash flow can fuel most of this loss, and the $192 million in cash and securities on its balance sheet could help fund the rest.
It's clear that Fiverr's service is still valuable to millions of businesses around the world, and that might not change as long as freelancers continue to enjoy working from home. At nine times sales, the stock looks especially appealing today. Investors might want to consider owning this company, even if the market continues to swing up and down over the coming months.
