For a stock that has failed to benefit from the record stock market rally over the past 18 months, Wall Street has placed a lot of faith in Casper Sleep (NYSE:CSPR) to power ahead in the year to come.

From the market's bottom on March 23 of last year to today, the S&P 500 doubled in value, an extraordinary run that was not matched by the mattress maker, which gained just over 20% in that same time frame. Yet over the next 12 months, analysts have a consensus price target on Casper that anticipates shares of the mattress retailer will soar 122% to more than $9 a share.

Considering the headwinds Casper is facing, it's hard to see why Wall Street analysts have such faith in its ability to bounce back so strongly.

Smiling person laying on mattress.

Image source: Getty Images.

A traffic jam of monster proportions

The elephant in the room confronting Casper -- and really the entire country, at this point -- is the massive logjam of container ships sitting off the coast of California and elsewhere waiting to be unloaded.

The U.S. supply chain has run into gridlock and increasingly looks as though it may break down completely. That's creating shortages not only of basic materials necessary to make mattresses, impeding any sort of rebound for Casper, but it's quite likely empty shelves will be a reality again at grocery stores.

It will occur amid soaring inflation that will only get worse as the government prepares to pump trillions of dollars into the economy through various spending programs. "Stagflation" isn't a word that has been heard in a long time, but it may be on everyone's lips soon, and it will hurt Casper immensely as consumers prioritize where they will spend their limited discretionary dollars that will be worth a lot less.

Dwindling tailwinds

Despite Casper and rivals such as Purple Innovation (NASDAQ:PRPL) and Sleep Number (NASDAQ:SNBR) reporting outsize demand for their bedding products, the mattress manufacturers have been unable to meet it because of the supply chain issues, along with rising costs for raw materials, freight, and labor. 

That upswing in burgeoning demand is not expected to last, though, with analysts projecting it will peter out in the fourth quarter. And it may hit sooner than that as the housing market starts to falter.

Over the past 18 months, new and existing home sales boomed, which provided a natural swelling of demand for bedding, but existing home sales fell 3.4% in September. With housing prices at record levels, buyers may soon be priced out of the market. 

The median sale price of a new house is $374,900, up 16% from the same time last year. Furthermore, the raw materials Casper and other manufacturers need for their mattresses -- including cotton, plastics, wood, and the chemicals to make foam -- are all in short supply and at record prices.

Casper, which is promising to become profitable on an adjusted EBITDA basis next year, might find that increasingly difficult to achieve. 

Two people in bed covering the lower halves of their faces with a comforter.

Image source: Getty Images.

A loss-generating business

Casper's financial performance has been hurt by the winding down of its European operations as it sought to focus on becoming profitable here in the U.S. It has narrowed its losses over the past year, and Wall Street expects it to continue doing so in the future, but Casper is forecast to be a loss-making business on a GAAP basis for years to come. Analysts expect the mattress maker to post losses of $0.58 per share in 2023, which is almost two-thirds less than what they forecast for this year, but profitability isn't in the cards for some time.

On the other hand, Purple is currently profitable, and its bottom-line profits are expected to triple over the next five years. Similarly, Sleep Number is also profitable. While its growth won't be nearly as impressive, its profits are substantially greater than those of its rivals, with last year's reported operating income of $185 million tripling what Purple produced.

Extreme patience needed

It's hard to see why Wall Street is expecting the surge in Casper's stock. While it is leaning into its wholesale strategy and selling more mattresses in stores like Bed Bath & Beyond than online, whatever momentum there may have been for its brand seems to have dissipated.

Casper -- as well as Purple and the others, too -- no longer have pricing power in their favor and can only raise prices on a limited number of mattresses. Supply chain issues will raise costs, while general inflationary pressures hurt consumers' ability to afford pricey bedding options.

The pandemic-tapering bounce the industry has enjoyed looks like it's coming to an end, and the stock of Casper Sleep may be comatose for quite a long time.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.