share of fig (Fig 0.64%)The maker of nursing scrubs and other healthcare apparel, faltered last year as growth slowed in recent IPOs and valuations in growth stocks fell sharply.
According to data from S&P Global Market IntelligenceThe stock ended 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.
Fig went public in 2021 at a time when growth stocks were on the upswing and was a successful IPO as the stock more than doubled after its debut.
In the first half of 2021, revenue growth nearly doubled, but that growth rate slowed dramatically in 2022, which appeared to be the main reason for the plunge in the stock, along with a general pivot away from growth stocks as investors fled the sector. 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 decline from its pre-IPO growth rate. In the first half of the year, the company was hit by supply chain constraints, but it’s often difficult for consumer goods companies to sustain such high growth, especially those that sell figs, which some consider a commodity product.
In addition to sluggish revenue growth, the company was also hit with a short-seller report in September as Spruce Point Capital complained that the company was overstating earnings and predicted it would miss its growth targets. Spruce Point also said the fig boosted its gross margin and total addressable market.
As growth slowed, the company’s margins also declined partly due to higher freight costs as well as further markdowns and a mixed shift to lower margin products.
After last year’s sell-off, figs may be starting to attract the attention of some value investors. According to its latest guidance, the company is targeting adjusted EBITDA of about $79 million in 2022, meaning the stock is trading at just 16 times the earnings measure and is profitable on a GAAP basis.
Fig has an unusually high gross margin for a consumer brand, 70%, which shows pricing power or low costs.
Revenue growth improved from the second quarter to the third quarter, indicating that supply chain headwinds may be partially responsible for weaker top-line growth, but its full-year guidance implied a decline in the fourth quarter as the company cited macroeconomic pressures.
If Fig can accelerate revenues in 2023, the stock still has plenty of upside potential, but that may be difficult to do unless the economy improves.
Jeremy Bowman has no position in any of the stocks mentioned. Motley Fool has no position in any of the stocks mentioned. Motley Fool has a revealing policy.