What happened
Shares of Figs (FIGS -0.21%), the maker of nursing scrubs and other healthcare apparel, got crushed last year as growth at the recent IPO slowed, and valuations came down sharply in growth stocks.
According to data from S&P Global Market Intelligence, the stock finished the year down 76%.
As you can see from the chart below, most of the stock's losses came in the first half of the year.
So what
Figs went public in 2021 at a time when growth stocks were soaring, and it had a successful IPO as the stock more than doubled following its debut.
In the first half of 2021, revenue growth nearly doubled, but that growth rate slowed dramatically in 2022, which seemed to be the main reason for the plunge in the stock, along with the general pivot away from growth stocks as investors fled the sector in a rising-interest-rate environment.
In its third-quarter earnings report in November, the company forecast full-year revenue growth in 2022 of just 18%, a sharp deceleration from its pre-IPO growth rate. In the first half of the year, the company was impacted by supply chain constraints, but it's often difficult for consumer products companies to sustain such high growth, especially as Figs sells what some might argue is a commodity product.
In addition to the slowing revenue growth, the company also got hit with a short-seller report in September as Spruce Point Capital alleged that the company had been exaggerating revenue, and forecast that it would miss its growth targets. Spruce Point also said Figs had overstated its gross margin and total addressable market.
As growth slowed, the company's margins also slipped due in part to higher freight costs as well as more markdowns and a mix shift to lower-margin products.
Now what
After last year's sell-off, Figs may start to attract the attention of some value investors. According to its latest guidance, the company is targeting adjusted EBITDA of approximately $79 million in 2022, meaning the stock is trading at just 16 times that measure of profit, and it is profitable on a GAAP basis.
Figs also has unusually high gross margins for a consumer brand, at 70%, showing off either pricing power or low costs.
Revenue growth did improve from the second quarter to the third quarter, showing that supply chain headwinds may have been partly responsible for the weak top-line growth, but its full-year guidance implies a deceleration in the fourth quarter as the company noted macroeconomic pressures.
If Figs can reaccelerate revenue in 2023, the stock still has a lot of upside potential, but that could be difficult to do if the economy doesn't improve.
