Trying to predict where the market will go over the short term is next to impossible. But when you're searching for potentially profitable places to park your hard-earned cash, you might want to start by considering companies with particularly happy customers. With this in mind, let's look at three companies that clearly do please their customers, based on a metric called the Net Promoter Score (NPS).
NPS is a metric that's based on people's responses to a single survey question along these lines: "On a scale of 0 to 10, how likely would you be to recommend this company, product, or service to a friend or colleague?" That key question is usually followed up with a question or three attempting to gauge why each respondent gave the answer that they did.
But it's that first question that counts. Those who respond with a 9 or 10 are classified as "promoters" -- customers who will keep coming back, and more importantly, who will enthusiastically recommend the business to others. Those whose answers are 6 or lower are the "detractors" -- folks who will disparage the company or its products. Subtract the percentage of detractors from the percentage of promoters, and you get the Net Promoter Score.
Obviously, higher scores are better. They range from -100 to +100, and if a business's NPS is a negative number, that's a problem. Any positive number, though, is at least good. According to the management consultants at Bain & Co., which invented the NPS, a score above 20 is favorable, above 50 is great, and an 80 or above is world class.
And this gauge of customer loyalty also tends to forecast business growth -- which brings us to three healthcare companies that are overwhelmingly pleasing their customers based on this metric: 1Life Healthcare (ONEM), with an NPS of 90; Dexcom's (DXCM 0.10%), which scored an 83; and FIGS (FIGS -0.21%), which scored an 81.
1Life Healthcare
1Life Healthcare, which does business under the name One Medical, is keeping patients thrilled with its primary-care medical practices, as evidenced by its eye-popping NPS of 90. The membership-based primary care platform grew its total member count by 34% in 2021 to 736,000. In the process, it grew its full-year revenue by 64%. And with such a high NPS, it's no wonder One Medical's membership plans have a better than 90% retention rate.
The company helps keep its patients in above-average health too. Its offices were ranked first by the New York City Health Department for viral load suppression among HIV patients (a measure of controlled disease). One Medical's mental health services have been shown to drive a 50% reduction in severe anxiety. In diabetic patients, One Medical's patients have reductions in average blood glucose levels that are twice what others have shown in publications. Clearly, its model seems to be working well for patients.
Image source: Getty images.
The combination of quality healthcare and satisfied customers has driven growth, and that's expected to continue. The company expects to end 2022 with 14% more members than at the beginning of the year, and sees full-year net revenue landing in the $1.045 billion to $1.085 billion range -- roughly 70% higher than in 2021.
Despite all that growth, Wall Street doesn't seem to appreciate the model. One Medical's shares are down almost 40% year to date -- and by almost 80% from their February 2021 peak -- making this stock an interesting watch list candidate.
Dexcom
Medical device company Dexcom also has a strong fanbase. Its popular G6 continuous glucose monitoring (CGM) system recently earned an NPS of 83 among the diabetic patients who use it. Those happy patients have led to ecstatic investors. Dexcom's shares are up by more than 500% in the last five years -- and by more than 4,900% in the last 10 years.
Despite its size -- its market cap is in the neighborhood of $51 billion -- Dexcom continues to expand. Total revenue grew 23% in 2021, and in foreign markets, sales grew by 54%. With the omicron COVID-19 surge largely in the rear-view mirror, its sales force is starting to make it back into medical offices, further driving device uptake. In addition, the competition seems to be stumbling. In December, rival Medtronic received a warning letter from the Food and Drug Administration regarding faults with its insulin pumps.
Adding to DexCom's tailwinds, the American Diabetes Association recently stated that CGM can be useful for people with diabetes who require multiple daily injections of insulin. This almost doubles Dexcom's addressable market in the U.S. from 4 million to about 7 million. And the company believes new geographies will more than triple its total addressable market by the second half of 2023. In addition, the Centers for Disease Control and Prevention now estimates that 38% of adults in America -- 96 million people -- have pre-diabetes. Between that and over 40% of U.S. adults reporting undesired weight gain since the start of the pandemic, the potential market for Dexcom is significant.
FIGS
Healthcare outfitter FIGS frequently draws comparisons to athleisure apparel maker Lululemon Athletica (LULU -1.26%), thanks to its stylish scrubs. And based on FIGS' NPS of 81 and Lululemon's score of 83, both companies are doing an excellent job of pleasing their customers. And scrubs maker FIGS has the growth to prove it.
With net revenue up 62% to $420 million in 2021, FIGS is firing on all cylinders. Its active customer base grew 46% to 1.9 million last year, and net revenue per active customer rose by $22 year-over-year and by $39 over the last two years. It also increased its repeat customer revenues to 68%, up from 62% in 2020. Plus, its fledgling international business -- currently, its only foreign markets are the U.K., Canada, and Australia -- tripled in 2021, providing 7% of revenue. Management plans to enter new markets in 2022.
FIGS knows its customers well. It actually tailors its site to offer more personalized content to its consumers, resulting in a higher conversion rate. In the fourth quarter, these personalized experiences resulted in a conversion rate that was almost twice what it had been before it began using tailored content. Half of its new customers come back and buy again within a year. And if buyers purchase from FIGS in two consecutive years, they are likely to stay loyal -- over 95% of those customers purchase from it again in year three.
Companies with high Net Promoter Scores are worth a second look
While a Net Promoter Score certainly isn't the only way to measure the outlook for a stock, a strong number should certainly get investors' attention.
Companies whose scores are far higher than those of their peers have tended to well reward their shareholders over the years. While the market and individual share prices will always fluctuate, a high NPS indicates the type of brand loyalty that can outlive short-term volatility.
Given how well they are satisfying their customers, FIGS, Dexcom, and One Medical deserve consideration for investors' watch lists.
