Wall Street might be rethinking its bullish outlook for Casper Sleep (CSPR +0.00%), the promising but problematic mattress maker that's burning through cash in an ambitious bid to grow bigger.
It recently got its main lender to agree to let its cash balances dip far below previously agreed-upon levels, while earlier this week it also filed a shelf registration for a mix of stock and debt to raise $150 million.
Image source: Getty Images.
At least one analyst is having nightmares about the stock as Wedbush analyst Seth Basham lowered his outlook on Casper to neutral from outperform, and also slashed his price target from $10.50 per share to $4.
Casper currently trades below that reduced price, down 70% from its 52-week high and 40% below where it started the year.
Fevered dreams
Casper was something of a horror show from before last year's initial public offering (IPO). The bed-in-a-box maker had planned to debut on the Nasdaq exchange at a price between $17 and $19 per share, but hours before the IPO, Casper slashed the offer range to $12-to-$13 per share.
The situation really hasn't improved. Casper is still a loss-generating business, posting a $90 million loss in 2020, which was only slightly narrower than the $93 million loss in 2019 and the $92 million one the year before that.
Year to date, it's running a deficit of $55 million, only slightly less than the $59 million loss it posted through the first six months of last year.
And now it seems to be running out of cash.
Image source: Getty Images.
Hiding under the covers
In a filing last week, Casper said it convinced Wells Fargo to waive the requirement that it had to maintain at least $32 million in cash in its bank account between now and the end of the year to avoid triggering a default notice. Also, as long as Casper gives Wells Fargo at least five days' notice, it can lower its cash balance below $15 million.
While Casper has been lighting a match to its money before the pandemic or the current supply chain disruptions, it's clear that port congestion, shipment delays, and soaring inflation are going to further eat away at whatever money Casper was stuffing under its mattresses. Poor financial results will haunt investors' dreams for a long time to come.
That's probably why it is looking to raise $150 million through a shelf registration to sell a combination of stock, debt, warrants, and units. That doesn't mean it will raise all that money at once, or dilute shareholders (or increase its debt load) immediately: A shelf registration gives a company three years to sell the underlying securities.
What it does indicate is that Casper has a lot worse financial problems than previously believed.
A stock to give you insomnia
The bed-in-a-box niche is crowded and competitive with rivals including Purple Innovation, Leesa, and Nectar, not to mention adjustable mattress maker Sleep Number, and more traditional mattress companies such as Tempur Sealy. Consumers have plenty of choices.
But most of them (albeit not all) are profitable, and with the cost of raw materials for mattresses and foam beginning to run away, and with no end in sight for the logjam of ships backed up in ports around the country, the problems for Casper Sleep -- logistical and financial -- are only going to grow.
