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Why Leggett & Platt Stock Jumped 32% in April

By Reuben Gregg Brewer - May 5, 2020 at 9:56AM

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As the world processed the COVID-19 shutdowns, industrials like Leggett & Platt bounced off their lows.

What happened

Shares of industrial Leggett & Platt (LEG 0.70%) rose by 32% in April according to data from S&P Global Market Intelligence. That, however, wasn't enough to make up for the year-to-date declines, leaving the stock down about 30% for the first four months of the year. It was really just caught up in the moment, as the stock market rallied off a low. In other words, don't get too excited.

So what

Leggett & Platt is something of a unique company, making bedding products (bed springs, foam, bed components, and private label mattresses), auto seats, and furniture components, among other things. However, much of what it sells is economically sensitive, with recessions leading to notable declines in demand. So, earlier in the year, when investors were concerned that COVID-19 containment efforts would push the world into a recession, Leggett & Platt fell hard, along with the broader market.

Two hands holding blocks spelling out the words "risk" and "reward"

Image source: Getty Images.

Then, in April, investors started to get bullish again, and quickly pushed stock prices higher. Leggett & Platt rose, too. Yet a recession is still brewing and demand for its products is likely to be weak for some time. Management warned about these trends in early April, when it withdrew full-year guidance. When the company reported earnings in early May it basically repeated that message, saying the recent flow of orders was roughly 45% below normal levels.    

Now what

April was a good month for Leggett & Platt's stock, but it was hardly a good month for the company's business. The pain, meanwhile, is likely to linger until economic conditions start to sustainably pick up again. The timing on when that happens is unclear as the world works its way back from the COVID-19 shut downs. Long-term investors should tread with caution here. The April rally wasn't built on strong operating fundamentals. That's not inherently Leggett & Platt's fault, but the company still has to figure out how to survive a difficult period that is definitely not over yet. 

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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