Key Points
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Figs stock jumped 53.8% in October without any major company news.
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An industry review named Figs the top apparel performer of the second quarter, sparking another round of high-volume gains.
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Third-quarter results on Nov. 5 will test the stock’s lofty expectations.
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Figs (NYSE:FIGS) had a fantastic October. The scrubs maker’s stock jumped 53.8% during the month, according to data from S&P Global Market Intelligence. Meanwhile, the S&P 500 (SNPINDEX:^GSPC) held steady with a minuscule 0.9% drop. The funny thing is, Figs barely said a word. No earnings report, no big deal, no splashy acquisitions. Wall Street simply woke up and noticed how good the company’s last quarter really was.
Image source: Getty Images.
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No headline? No problem.
The company’s October press releases were limited to seasonal product launches, including a fall color collection and a line of children’s scrubs timed for Halloween. Searches for Figs news during the month turned up more recipes and pantry tips than corporate announcements.
The real spark came on Oct. 12, when an industry review of second-quarter results named Figs the best performer among apparel and accessories companies. Looking back, that quarter was a beauty. Revenue hit $196.6 million, 5.6% above expectations, and earnings of $0.15 per share more than doubled the $0.07 consensus. Analysts had raised full-year earnings estimates by roughly 23% over the past quarter, and several firms lifted their price targets.
Investors noticed all at once. Figs jumped 12.4% that day on more than triple its usual trading volume, and Investor’s Business Daily crowned it the top stock in the apparel industry. Momentum investors love that kind of signal.
The options market tells a fun story, too. On Oct. 7, traders loaded up on put options, betting the stock would fall. Within a week, the crowd flipped and started buying calls instead. Add a short interest of 13.3% of the float, and you get a cluster of bears suddenly scrambling for the exits. The combo is a great recipe for fruity volatility.
This wasn’t a sectorwide party, either. Some apparel peers posted double-digit gains in October, but none came close to Figs.
Now comes the hard part
After a run like that, Figs isn’t cheap anymore. The stock trades at about 68 times trailing earnings and 58 times next year’s expected profits. It even sits above Wall Street’s average price target of $21.12, which tells you analysts are struggling to keep up with the market momentum.
The company reports third-quarter results after the closing bell on Thursday, Nov. 5, and the bar is now sky-high. Investors want more of the same: strong sales, fatter margins, and fewer discounts. Anything less could let some air out of this balloon. That may be a weird thing to say about a maker of boring work clothes, but it’s all true.
There’s also a question mark around the supply chain. Since August, Figs has been working around a U.S. import restriction on one of its suppliers in the country of Jordan. For what it’s worth, Jordan also has a proud dried-fig tradition. I have no idea what to make of that coincidence.
On the bright side, Figs has a healthy balance sheet with about $240 million in net cash and very little debt.
I’m not saying this stock can’t keep climbing. But before buying in after a 53.8% month, I wouldn’t let my attention wander from Thursday’s earnings report. For better or worse, the report is likely to move Figs’ stock price.
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Most investors think they missed the AI boat because they didn’t buy Nvidia in 2005.
But according to our analysts, we’re only at the end of “Act 1″—the R&D phase. “Act 2” is the global rollout, a massive technology build-out that Google’s CEO says could be more profound than fire or electricity.
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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Figs. The Motley Fool has a disclosure policy.
