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Why Casper Sleep Stock Rallied 28% at the Open Today

By Reuben Gregg Brewer – Apr 26, 2021 at 9:33AM

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Shares of the mattress and bedding maker took off with a little help from a Wall Street analyst.

What happened

Shares of Casper Sleep (CSPR), which makes mattresses, beds, pillows, and sheets, rose a quick 28% when trading got under way on April 26. That massive gain in the first half hour of trading wasn't driven by news out of the company, but by an analyst upgrade.  

So what

Investors tend to like it when analysts make positive calls on stocks, so it's not shocking that Casper rose on the news of a Wedbush upgrade. While the price target improvement wasn't all that large on an absolute basis, with the analyst taking the call from $10 per share to $10.50, the stock closed out the prior day of trading at roughly $7 per share, so there's notable upside if the Wedbush analyst's target proves accurate, even after today's rather large early gains.  

A hand holding a pen pointing to a candlestick chart with stock quotes in the background.

Image source: Getty Images.

The bigger change, meanwhile, was the shift from neutral to outperform. Although every Wall Street firm is different, that's basically making Casper a buy. The analyst believes the company has a solid path for revenue growth and, eventually, profitability. All in, this was a pretty positive call on the stock.  

Now what

Casper is a growing company, but as of yet it is not a profitable one. Long-term investors should probably take the Wedbush update with at least a small grain of salt. Yes, today's call is good news. Yes, it appears that Casper is moving in a positive direction, business wise. But neither of these facts offset the fact that the market is pricing in a lot of good news today for a company that is still bleeding red ink. If the enthusiasm doesn't hold, the stock could quickly fall back down to earth.  

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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