Don't Sleep on Tempur-Pedic After Its 52-Week Low

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:

TPX Total Return Price Chart

TPX Total Return Price data by YCharts.

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:


P/E Ratio

3-Year Annualized Earnings Growth

Net Margin (TTM)

Tempur-Pedic 12.7 39.0% 15.4%
Mattress Firm 25.5 N/M 4.9%
Sealy N/M N/M (0.6%)
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.

What's next?
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.

Interested in tracking this stock as it continues on its path? Add Tempur-Pedic to your watchlist now for all the news we Fools can find, delivered to your inbox as it happens. Looking for other long-term opportunities? The Fool has three stocks that can help you retire rich. Find out more about them in our free report -- click here for the information you need.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights. The Motley Fool owns shares of Tempur Pedic International. Motley Fool newsletter services have recommended buying shares of Select Comfort. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (7) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 06, 2012, at 9:53 AM, Patastic wrote:

    Growth halted, stock plummets. They just re-affirmed guidance on April 19. Today, they cut profit by 50%? Whiskey Tango Foxtrot?

  • Report this Comment On June 06, 2012, at 9:55 AM, XMFBiggles wrote:

    Well, that sure made me look bad, didn't it?

  • Report this Comment On June 06, 2012, at 10:20 AM, Smitter11 wrote:

    I have to say that my luck with advice hasn't been great lately. I picked this one up a few weeks ago after they fell and the stock looked cheap based on trailing and forward earnings. I've also gotten crushed on WPRT (bought at $36) and had the stock that goes nowhere with ATVI ($12).

  • Report this Comment On June 06, 2012, at 10:47 AM, TSIF wrote:

    TMFBiggles, maybe some readers in our attention deficit world stopped at the title and first few paragraphs, in which case you look like a genius!! You were doing great, (in hindsight) until the last few sentences....(ask the editors to tweak your sentiment a little bit...if they won't take a few new stress balls for a bribe then find a shill to play them pool or foosball on a bet! ;)

    I played Temper-Pedic up here on caps o the last hard fall for a bounce, but I didn't expect much long run. The competition definitely has their number and the P/B and other valution metrics tended to detract from the EPS in my metrics.

    Don't hide under the covers. We all get caught occasionally, especially in this market. At least you had a mattress to fall on!

  • Report this Comment On June 06, 2012, at 2:34 PM, chopchop0 wrote:

    Amazing. It's trading at 2009 levels now.

  • Report this Comment On June 07, 2012, at 6:44 AM, XMFBiggles wrote:

    @ TSIF -

    My greatest regret is not waiting an extra day to make the call.

  • Report this Comment On June 07, 2012, at 1:44 PM, TSIF wrote:

    After two day's we've sold the float, so I'll join your upthumb for a short time. Probably early, three days selling is usually norm, so the appearance of a bottom here is probably a bounce. Overall, the valuation a few months ago was based on serious expectations which is not an investment thesis. Even at $22.00 this one has some fluff in it if the "sales model" which spooke investors last time doesn't pan out. I think they were in trouble if they didn't offer discounts, but offering discounts feeds future consumer expectations. Those who are "purists" for the brand may help them for the next few quarters. Good luck. A little humble pie is good for the soul, but not usually for the trading account! ;)

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