Hook / Thesis
FIGS has been one of the better retail/healthcare-apparel turnaround stories this cycle. After a choppy run, the shares have re-tested higher and are trading near $11.60 intraday. The case here is straightforward: recent quarters show accelerating revenue, recovering operating income and a clean balance sheet that gives management optionality — all while the stock still reflects a valuation that can re-rate if the company sustains mid-single-digit operating margins and continues to convert sales to cash.
I will be actionable: this is a tactical long for investors comfortable with small-cap retail volatility. Entry range, stop and targets are below. The trade is predicated on the next two to three quarters confirming sustained revenue growth and operating leverage; if that fails, the stop will protect capital.
What FIGS does and why it matters
FIGS, Inc. designs and sells healthcare apparel - scrubs and related non-scrubwear - primarily through digital channels in the United States. The business is a modern DTC-plus-wholesale model with a high proportion of repeat purchases and a direct relationship to healthcare professionals. That positioning matters because it gives FIGS pricing/brand control and the ability to launch adjacent products faster than legacy wholesale-first players.
Why the market should care now: the company is showing signs of operational normalization. In the most recent quarter (07/01/2025 - 09/30/2025, filed 11/06/2025) revenues were $151.7 million, gross profit was $106.1 million and operating income was $9.6 million. Those numbers indicate the model can be profitable at scale when traffic and conversion normalize and operating expenses are disciplined.
Facts and figures that support the setup
- Q3 FY2025 (period ending 09/30/2025, filed 11/06/2025): Revenues $151,661,000; Gross profit $106,068,000; Operating income $9,635,000; Net income $8,746,000; Basic EPS $0.05.
- Two prior quarters: Q2 FY2025 revenues $152,640,000 (filed 08/07/2025) and Q1 FY2025 revenues $124,901,000 (filed 05/08/2025). The three most recent quarters sum to $429,202,000; annualizing those three gives an estimated ~$572 million revenue run-rate — useful for valuation framing.
- Balance-sheet strength in Q3 FY2025: Current assets $418,018,000 vs. current liabilities $86,659,000; shareholders' equity $413,329,000. Inventory, however, is notable at $151,233,000.
- Cash flow in Q3 FY2025: Net cash flow from operating activities was $3,437,000, and net cash was reduced modestly for the quarter after investing activity. Free-cash conversion has been mixed quarter-to-quarter, but operating cash generation is positive in the latest quarter.
Valuation framing
Using the recent diluted shares figure (180,875,933 diluted average shares in Q3 FY2025) and the current trading price near $11.60, equity value is roughly $2.1 billion (180.9M shares x $11.60 ≈ $2.10B). Annualizing the three most recent quarters gives an approximate revenue run-rate of $572M. That produces an implied price-to-revenue multiple in the neighborhood of ~3.7x on a market-cap / annualized-revenue basis.
Context: for a digitally-led, repeat-purchase apparel brand, ~3.7x revenue is not inexpensive but is not stretched if the company can sustain mid-single-digit operating margins and expand gross margins through mix and cost control. FIGS’s most recent operating income of $9.6M on $151.7M revenue implies a quarter operating margin near 6.4% — a positive signal relative to past periods of negative or pressured operating income.
Catalysts (what will move the stock)
- Quarterly results that show continuing revenue growth and higher operating leverage - particularly improvement in operating income and operating cash flow.
- Gross-margin expansion from product mix, sourcing or pricing actions (gross profit was $106.1M in Q3 FY2025 vs. cost of revenue $45.6M in the same quarter).
- Inventory optimization - any meaningful reduction in inventory relative to sales will relieve working-capital drag and improve free cash flow.
- Repeated and credible evidence of channel diversification beyond direct-to-consumer (wholesale/partnerships) that increases reach without diluting margins materially.
- External interest or consolidation rumors (there was notable takeover chatter in late 2024) can provide an asymmetric upside if repeated or formalized.
Trade idea - actionable setup
- Trade direction: Long
- Recommended entry: $11.25 - $12.00. Aggressive traders can start near $11.50; patient traders can wait for a pullback into $11.25.
- Initial stop: $10.00 (around 13-14% below a $11.60 reference). A stop below $10 protects against a gap-down re-rating or execution issues.
- Targets: Short-term target $13.50 (first resistance band), intermediate target $16.50 (if next quarter confirms topline / margin improvement), stretch target $22.00 if the business re-rates toward premium digital-apparel multiples or if M&A news arrives.
- Time horizon: Swing (6-12 weeks) with the option to hold into a confirming quarterly print for a position trade (3-6 months) if results continue to improve.
- Position sizing: Keep size modest (5% of portfolio risk budget for most retail investors) given the small-cap volatility and inventory exposure.
Why I think this trade has asymmetric upside
FIGS combines a recognizable brand with direct consumer economics and a balance sheet that gives management room to execute. The company has shifted from quarters of margin pressure into a quarter with positive operating income and positive operating cash flow. If management holds discipline on SG&A and executes inventory management, profit and cash flow can re-accelerate while the market re-prices the equity multiple higher.
Risks and counterarguments
All of the following are real and would cause me to exit or sharply reduce the position.
- Inventory risk: Inventory is meaningful at $151.2M as of Q3 FY2025. Relative to an annualized revenue run-rate of roughly $572M, that inventory level is material (~26% of the run-rate). If demand softens or the company needs to heavy-discount, gross margin and cash flow could deteriorate quickly.
- Volatility and retail execution: Digital apparel players are sensitive to traffic, marketing efficiency and consumer sentiment. A deterioration in conversion or customer acquisition economics will compress margins and could rapidly push the stock below the proposed stop.
- Valuation compression: The implied market cap (~$2.1B) already prices future margin improvement. If revenue growth stalls while operating expenses remain elevated, multiples can compress fast.
- M&A/noise risk: Past takeover chatter has made the stock binary around rumors. That can spike volatility and lead to outsized moves that are not tied to fundamentals.
- Supply chain / cost inflation: Any increase in product costs that cannot be fully passed through to end customers or that reduces product mix could squeeze gross margins.
Counterargument to my thesis
One could reasonably say FIGS is already priced for perfection: the market cap implied by current price assumes sustained sales and margin recovery. If the company merely replicates low-single-digit operating margins or sees growth slow, the stock could trade materially lower. Also, high inventory suggests management may have misjudged demand or overordered to keep assortment; the margin benefit from mix could be offset by markdown risk.
What would change my mind
I would become more bearish if: (1) operating income reverses and the company posts negative operating earnings next quarter; (2) inventory increases again in absolute dollars or as a percent of sales without a clear plan to de-risk it; (3) operating cash flow turns meaningfully negative relative to GAAP net income (widening the gap between reported profit and cash conversion).
Conversely, I would increase conviction on a breakout to the higher targets if FIGS prints two consecutive quarters with expanding gross margins, improving marketing efficiency (lower CAC) and demonstrable inventory reduction as a percentage of sales.
Conclusion - clear stance
My stance: Tactical long with defined risk controls. The rally into the $11.25-$12.00 zone has merit given recent revenue stability and a return to operating income in Q3 FY2025. The balance sheet provides a cushion while the company re-shapes inventory and continues to pursue margin improvement. The trade makes sense for investors who want exposure to a digitally-led healthcare apparel brand and can tolerate small-cap volatility; use a disciplined stop at $10 and scale out at the targets listed above.
11/06/2025: Q3 FY2025 filing referenced. 08/07/2025 and 05/08/2025: Q2 and Q1 FY2025 filings referenced.
Disclosure: Not investment advice. This is a trade idea based on recent financials, balance-sheet items and price action.