Shares of premium mattress brand Sleep Number (SNBR -0.35%) skyrocketed on Friday after the company reported financial results for 2023 and gave financial guidance for 2024. As of 10:50 a.m. ET, Sleep Number stock was up an eye-popping 39%.

Sleep Number is hanging in there

Take Sleep Number's stock gains today with a grain of salt -- the stock is still down 90% from its all-time high and shares are flat year to date after this morning's gain. That said, the market is responding to a relative stabilization in consumer demand and a promising profit outlook.

Sleep Number takes orders and customer deposits regularly but doesn't recognize revenue until mattresses are delivered. Therefore, there's a lag between current consumer demand and revenue -- revenue now is a reflection of past demand.

Sleep Number's net sales were down 11% in 2023 -- not great. But demand in the fourth quarter was only down "low-single digits." And the company expects roughly the same drop in demand in 2024.

However, Sleep Number prepared for the slowdown by restructuring its business to save money. Therefore, while it had negative free cash flow of $66 million in 2023, it expects to generate between $60 million and $80 million in positive free cash flow in 2024 -- a dramatic improvement.

More upside ahead?

It's evident that Sleep Number's financial results aren't great. But it's important to note how depressed this stock was. Even after today's jump, the market cap is only around $330 million. Therefore, the stock still only trades at around 5 times its free-cash-flow guidance -- shares could still double from here without looking expensive.

The caveat to that takeaway is that Sleep Number has a heavy debt load with $540 million on its revolving credit line -- it doesn't keep cash on hand but rather uses this credit line. And the balance increased by about $80 million in 2023.

In conclusion, Sleep Number stock is dirt cheap but the company isn't in a position of financial strength. If business conditions unexpectedly weaken, the company could be fighting an uphill battle.