Why Figs Stock Keeps Going Up |

For the fourth day in a row, Figs (FIGS +1.87%) stock is growing — up 3.5% through 9:45 a.m. ET — and some analysts think it’s ripe for more.

Shares of the supplier of scrubs to medical industry workers gained for two days ahead of earnings last week — then surged nearly 27% on earnings day after reporting twice as much profit as Wall Street had forecast. Not everyone was impressed; Telsey Advisory lowered its price target on Figs stock to $16 after the report. But two other analysts, Adrienne Yih at Barclays and Ashley Owens at KeyBanc, begged to differ — both raising their price targets to $20 per share.

And predicting Figs stock could rise another 36% in the next 12 months.

Figs’ Q2 earnings report

Figs grew its sales 29% year over year last quarter, to $196.6 million, booking both more orders and bigger orders from its customers. Scrubs sales grew 26%, non-scrubs sales grew 40%, and international sales of both grew 67%.

With numbers like these, though, why did even one out of three (stock) doctors surveyed say that Figs stock might not go up much more?

How to value Figs stock

A seemingly high P/E ratio could be one reason. Figs’ price-to-earnings ratio is a lofty 38x, which may seem expensive relative to even 29% sales growth. But here’s the thing:

Figs grew its earnings much faster than its sales, with GAAP net profit up 300% year over year. Free cash flow flipped from negative to positive, and over the past 12 months, Fig has generated $97 million in positive FCF — about 60% more than its reported profit.

Valued on FCF and adjusted for net cash, I get a 22x enterprise value-to-FCF ratio for Figs stock. At its current growth rate, that makes Figs stock dirt cheap.

Rich Smith 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.