By Sam Boughedda
Shares of Figs Inc (NYSE:FIGS) dipped in the early part of Wednesday's session after Spruce Point Management released a report on the stock stating it was a "COVID-19 beneficiary that will fail to sustain momentum due to demand normalization and increasing competition."
The short-seller explained that after a "detailed forensic review of FIGS management, its business, and financial reporting," they see a "markedly different" side to the FIGS Awesome Humans story.
"We believe FIGS co-founders are prone to exaggerating their professional work history and key business and financial metrics. For example, 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 (TAM) potential by 135%," Spruce Point wrote.
They acknowledged that FIGS initially altered the scrubs landscape, but the firm feels it has "virtually no sustainable competitive advantage," and they see multiple signs that its future goals will sorely disappoint.
"The history of retail stocks shows that revenue growth slowdowns are a harbinger for multiple compression, and given FIGS industry premium multiple of nearly 4.0x 2022E revenues, we see room for up to 45% – 60% downside risk ($4.40 — $6.05) per share," argued Spruce Point.