If one is to believe Chuck, Select Comfort (Nasdaq: SCSS ) is a lucky player in a cyclical big-ticket sector. I don't buy it. These aren't cars, boats, or homes here. A queen-sized Sleep Number mattress with a foundation will run you between $800 and $3,000. Isn't that a PC upgrade, a root canal, or a year of double lattes?
And cyclical? The International Sleep Products Association claims that the bedding market has risen at an annualized clip of 6.3% since 1984. The growth has been pretty consistent. Only in 2001 did the industry suffer a decline (and even then it was a mere 0.3% dip). With 70% of the sector being fueled by replacement mattresses, the industry hasn't even caught a cold when the housing market skips a beat. If your bed is lumpy or the Bionic Woman wins you over on the merits of air-chambered mattresses where each side of the bed can have a different firmness setting, you're in.
So no, Chuck. Select Comfort isn't toiling away in cyclical luxury.
"Try as it might, no company can outgrow its industry forever," Chuck writes. "The problem is that we're talking about a sector in which air-chambered bed makers like Select Comfort and foam mattress giants like Tempur-Pedic (NYSE: TPX ) are eating into the fading box-spring market. If your product is revolutionary -- and patent-rich Select Comfort does have that going for it -- you can feast on fast growth in a traditionally slower-growing industry."
But why bring up Tempur-Pedic and Sealy (NYSE: ZZ ) , Chuck? Everyone knows they are no Select Comfort. Sealy lost money in 2003 and 2004 before being recapitalized and going public earlier this year. So far this year, Tempur-Pedic has seen its margins contract, with net income rising all of 3% while sales have inched 8% higher (earnings-per-share growth has been inflated through an aggressive share buyback).
Comparing their market caps is also unfair, as Tempur-Pedic and Sealy are debt-laden entities. Sealy, in fact, is so bloated that it has a negative book value. Using more accurate enterprise values instead of market caps would show how cash-rich Select Comfort is really the best value of the lot -- even before you consider the amazing prospects for future growth.
As a "potential customer," I hope my testimonial helps sway you as a fellow Sleep Number user, Chuck. If you're not sleeping through the night, there really is no "higher priority" at the moment. Hidden Gems was three years late. I was five years late in buying in. Maybe you will be six years late. That's OK. Better late than sleepy, my friend.
Longtime Fool contributor Rick Munarriz thinks that a good night's sleep is better than a balanced breakfast to start the day off right. He does own shares in Select Comfort. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool's disclosure policy is incredibly comfortable.