With all the vast changes, disruptions and social dilemmas stirring the U.S. economy over the past 14 months, historians may overlook the sudden change among consumers to purchasing online mattresses.
But Utah-based Purple Innovations (PRPL) is at or near the head of the trend. It’s the first publicly traded mattress startup, and one of the few such companies to manufacture its own products. Casper Sleep (CSPR) launched in February 2020, with a hybrid retail-online marketing model and with 20 partners internationally.
However, Casper Sleep shares are trading 28% below their IPO price and are mired in a 10-month consolidation. Meanwhile, Purple stock — today’s IBD 50 Stocks To Watch pick — is up more than 250% from its initial price, and forming a strategically important base ahead of its May 10 earnings report.
The Online Mattress Boom
The overall U.S. mattress market was estimated at around $15.7 billion in 2019. It is forecast to grow to $22.5 billion by 2030.
The names at the top of that market are the traditional biggie brands, such as Beautyrest, Sealy, Tempur-Pedic and Serta. But the most popular memory foam and direct-to-consumer names include Casper, Avocado, Winkbed, Nest and Leesa. And, of course, Purple.
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All offer their own brand of rollable, compressible memory foam, though the largest distinction between products tends to be in the marketing. Most U.S. mattress brands, including the online mattress sellers, outsource their manufacturing to a handful of suppliers. Several bed-in-a-box companies outsource the core mattress manufacturing, then layer on some proprietary materials to differentiate their product.
All of Purple’s main products are manufactured at facilities in Alpine and Grantsville, Utah, and McDonough, Georgia. A March 17 Oppenheimer note said “significant investments in 2021 should facilitate even stronger sales in 2022 and beyond. That refers, in large part, to the McDonough facility, which came online earlier this year.”
The U.S. International Trade Commission determined on April 21 that underpriced imports from countries including Vietnam, Serbia, Malaysia and Thailand were “materially” damaging the domestic U.S. mattress market. This appears to point to tariffs on mattresses imported from those countries, giving Purple another potential boost.
Purple’s Track Record
Purple launched in 2016, and went public in 2018 in what used to be called a reverse merger, but these days is called a merger with a special-purpose acquisition company, or SPAC. Purple became a wholly owned subsidiary of Global Partner Acquisition, which changed its ticker from GPAC to PRPL.
The online mattress company is the brainchild of Tony and Terry Pearce: brothers, both Mormons, with an army of “44 children and grandchildren between them,” according to Forbes.
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The company has tapped into rising trends in both memory foam and direct-to-consumer marketing. These trends are now — by leaps and bounds — the fastest-growing portions of the overall mattress market.
Purple has scored improving bottom-line performance, with EPS gains of 93% and 250% in the past two quarters. Forecasts for the first quarter call for a 9% dip in earnings. Further out, forecasts see earnings growth of 32% in 2021 and 33% in 2022.
The company’s chain of quarterly revenue gains has been unbroken since the first quarter of 2017. Annual sales growth for 2020 was 51%. Analysts project a 37% gain in the first quarter.
Resetting The Base Count
Oppenheimer is more optimistic than Wall Street in general, calling for EPS of 13 cents in Q1 vs. the consensus view for a dime. Oppenheimer reports that Purple still accounts for “just 3% of the domestic mattress sector and only 6% of the market for premium mattresses, or those priced in excess of $1,000.”
Purple stock on Thursday was holding support above its converged 50-day and 21-day moving averages. It has been attempting to build a handle in what for now stands as a 14-week cup base. The current proper buy point is 41.18, about 18% above where shares traded on Thursday.
One key characteristic of the base is its depth: 42%. That’s more than normal, but was just enough to undercut its prior consolidation and reset its base count.
That gives the stock a first-stage base from which to break out if investors approve of its first-quarter results. Breakouts from first-stage bases tend to lead to longer runs than do those of third- or later-stage bases.
Find Alan R. Elliott on Twitter @IBD_Aelliott
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View more information: https://www.investors.com/research/online-mattress-disrupter-purple-resets-base-count-ahead-of-earnings/