Figs Inc (NYSE: FIGS) is down nearly 60% for the year but a short seller warns the stock is still trading at a significant “underserved” premium.
Figs shares have downside to $4.40
On Wednesday, Spruce Point Capital Management said the healthcare apparel brand is a “strong sell” with downside to $4.40 a share as demand continues to lose momentum after the COVID boost.
High employee turnover and poor governance are among other reasons cited for the strongly bearish view. Figs will fail to deliver on its lofty growth ambitions as it lacks a competitive advantage, the report added.
Although it initially altered scrubs landscape, we believe it has virtually no sustainable competitive advantage and see multiple signs, including ballooning inventory, that its optimistic future goals will sorely disappoint.
Consequently, the short seller expects its multiple to contract as revenue slows down.
Figs has a history of overstating financials
More alarmingly, Spruce Point cautions the medical scrubs maker overstates its business and financial metrics, which means a 21% year-on-year growth in revenue it reported for the fiscal second quarter last month really didn’t mean much.
After a detailed forensic review, we find evidence to suggest that historical revenue figures were inflated by 82%, gross margins by 2,040 basis points, and its total addressable market potential by 135%.
Figs is yet to respond to the report. It currently has a short interest of 13%.
On the flip side, though, famed investor Ron Baron, about a couple weeks ago, revealed the stock as his largest recent investment (source). Baron Capital now owns roughly 2.4 million shares of this company.