Shares of Tempur-Pedic (NYSE: TPX ) hit a 52-week low yesterday. Let's take a look at how the company got there to find out whether cloudy skies remain on the horizon.
How it got here
Tempur-Pedic is one of many former highfliers cut down by underwhelming guidance. Though its mattress peers haven't done that well since Tempur's big drop, none have had their potential cut short so suddenly:
Recently public Mattress Firm (Nasdaq: MFRM ) doesn't have as much stock history as Tempur's other competitors, but it's still up about 60% from its IPO. Sealy (NYSE: ZZ ) might be doing worse than Tempur, but investors should be used to that by now, as the stock's been negative for the entire year, thanks to a lack of growth and difficulty turning a profit. A mattress-sector decline began with Tempur's free fall, and it may well continue for some time. Global economic weakness looms on the horizon, and mattresses are the sort of major purchase consumers may put off when the belt gets tightened.
What you need to know
It's somewhat hard to justify Tempur's big fall based on a quick look at some important numbers, which all favor Tempur over its peers:
3-Year Annualized Earnings Growth
Net Margin (TTM)
|Select Comfort (Nasdaq: SCSS )||22.1||23.1%||8.2%|
Source: Yahoo! Finance. N/M = not material due to negative earnings. TTM = trailing 12 months.
Only Select Comfort comes close, and it's valued at nearly twice Tempur on a price-to-earnings basis. Tempur-Pedic's net margin also happens to be much better than any other mattress company. Consider this, as well: The guidance that gutted Tempur's stock still called for 15% top-line and 22% bottom-line growth in 2012.
Margin expansion plus increased sales? Most investors would be jumping at the opportunity -- and it's a better one now that Tempur's valuation is so low. Foolish analyst Anand Chokkavelu made the stock his top pick for May, offering a wealth of positive numbers to offset short-term disappointment.
Where does Tempur-Pedic go from here? That will depend on its continued strength in the high-end memory-foam mattress segment, but that potential is somewhat mitigated by the potential for another global recession.
The Motley Fool's CAPS community thinks Tempur will do well in any environment, awarding it a respectable four-star rating. All 15 of the Wall Street analysts we track on CAPS predict long-term outperformance, and only eight CAPS All-Stars think it will fall more than the broader market, versus 177 bulls. I'll be adding my name to the bullish roster today. Tempur hasn't had a year of losses in more than a decade, and it has proven remarkably resilient in the face of economic weakness before. If it declines in a downturn, I fully expect Tempur to sport market-thrashing returns coming out of it.
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