Near the end of August, billionaire investor Ron Baron said he was incredibly bullish on Tesla Inc (NASDAQ:TSLA), SpaceX and a small apparel company he called “the Lululemon of healthcare.” Just weeks later, a short seller is taking the other side of the Tesla bull’s healthcare apparel trade.
What Happened: Short seller Spruce Point Capital Management on Wednesday released a bearish report on FIGS Inc (NYSE:FIGS), claiming that the company has a history of exaggerating key financial metrics.
“Based on our forensic review of FIGS’ claims, severe allegations of false advertising and unfair business practices from an ongoing lawsuit against management, and commentary of former employees suggesting a toxic culture, we believe FIGS’ management is prone to exaggerating financial performance and business claims and lacks the leadership necessary to execute,” the short seller wrote in the report.
At the end of last month, Baron announced that he recently invested approximately $100 million in the healthcare apparel company.
“FIGS, you haven’t heard very much about, but you will soon. It’s the Lululemon of healthcare,” Baron said.
Why It Matters: Spruce Point alleges that FIGS previously claimed to have generated more than $100 million in revenue in 2018, but the company’s IPO prospectus shows just $55 million in revenue in 2018, according to the report.
“Further, we believe FIGS presents its gross profit in a way that makes its gross margin appear industry-leading but is defined in a non-standard way,” Spruce Point said.
The short seller estimates that the company’s gross margins are overstated by 2,040 basis points. Spruce Point also argues that FIGS’ total addressable market is less than half of what the company says.
Spruce Point went on to highlight a handful of impending financial pressures and suggests that the company will fail to meet its growth goals because it lacks sustainable competitive advantages. The short seller slapped a price target range of $4.40 to $6.05 per share on the stock.
FIGS Price Action: FIGS has a 52-week high of $27.82 and a 52-week low of $6.93.
The stock was down 1.63% at $10.85 at time of publication, according to Benzinga Pro.
Photo: Forextime.com from flickr