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Why Select Comfort Shares Compressed

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of mattress-maker Select Comfort (Nasdaq: SCSS  ) dipped as much as 11% today, after a strong earnings report, but disappointing guidance.

So what: The sleep specialist said Q3 profits grew 52%, to $26.2 million, or 46 cents per share, well ahead of estimates of $0.41. The maker of the well-known Sleep Number beds grew same-store sales by 21% and continues to add stores at a strong pace, expecting to grow locations by nearly 5% in the fourth quarter alone. Revenue guidance for this fast grower tripped up analysts, however, as its full-year sales guidance was off Wall Street's view by about 5%.

Now what: We've seen this story play out many times before with growth stocks. Ironically, Select Comfort managed to raise EPS guidance above analyst predictions, but sales tend to be the key figure with high fliers like Select Comfort, whose shares have nearly doubled in the last year. Still, this reaction seems overdone. At a forward P/E of 16.3, this stock is approaching an average valuation, and 21% comps would make most retailers pale by comparison. With strong organic sales growth, and a number of new stores coming open soon, this could be the right time to jump into bed with Select Comfort.

Need a wake-up call on Select Comfort news? Just add the company to your Watchlist.

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Jeremy Bowman has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Jeremy Bowman

Fool since 2011. I write about consumer goods, the big picture, and whatever else piques my interest. Follow me on Twitter to see my latest articles, and for commentary on hot topics in retail and the broad market.

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5/6/2016 10:53 AM
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