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Here's Why Purple Innovation Stock Got Crushed Today

By Jon Quast - Updated Mar 4, 2021 at 11:14AM

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The company's financial results and guidance failed to live up to Wall Street's expectations, even though it's investing heavily in future growth.

What happened

Shares of mattress company Purple Innovation (PRPL 7.31%) got crushed on Thursday after the company reported financial results for 2020 and gave guidance for 2021. It appears it fell short of expectations in both areas, leading to the stock's fall. As of 11 a.m. EST, Purple stock was down 23%.

So what

For 2020, Purple grew net revenue to $648.5 million, a 51.4% year-over-year increase from 2019. The company also turned a profit of $10.9 million compared to a loss of $12.4 million the year before. Early in the pandemic, it appeared as though the company's sales would suffer, since many of its brick-and-mortar wholesale partners were closed. However, Purple's direct-to-consumer sales surged to more than make up the difference.

A red arrow points down and crashes through a floor as a businessman looks on.

Image source: Getty Images.

Still, Purple's 2020 financial results fell just shy of Wall Street's expectations. Furthermore, it appears analysts had expected more from the company's guidance. Purple's management is guiding for 30% to 36% year-over-year revenue growth in 2021. It's also forecasting an increase to capital expenditures, which didn't sit well with investors either. All of this is likely contributing to the stock's fall today.

Now what

For perspective, even when accounting for today's declines, Purple stock has still more than doubled over the past year. A pullback after a run like that is completely normal. Moreover, I wonder if investors are being a little shortsighted with this consumer stock today. Expenses are rising for Purple, yes. But remember that this company differs from many mattress businesses -- it manufactures its own with proprietary equipment. In 2020, Purple struggled to make enough mattresses to keep up with demand, so it's spending in 2021 to increase its capacity. That seems smart to me.

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