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The Fall and Rise of Casper Sleep Stock

By Rick Munarriz – Nov 16, 2021 at 10:05AM

Key Points

  • Casper Sleep shed more than two-thirds of its value since its 2020 IPO, only to make back a good chunk of the loss on Monday, after announcing it was being acquired.
  • A rough quarterly report after the deal was announced only shows how investors are getting a break with the buyout.
  • Casper Sleep was once hoping to go public for $17 to $19 a share, but now it bows out in the mid-single digits.

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The consumer-direct mattress specialist agrees to be acquired this week at a 94% premium.

The nightmare is over for Casper Sleep (CSPR). One of the worst performers from the IPO class of 2020 is getting bought out, a bittersweet exit strategy for a once-promising seller of mattresses and other bedding materials that failed to live up to the hype.

Casper Sleep announced on Monday that it's being acquired by private equity firm Durational Capital Management. The all-cash deal is a buyout at $6.90 a share. Takeouts in the mid-single digits aren't exactly high-fiving affairs, but this is a healthy 94% premium to where the stock was at the end of last week. 

The deal is expected to close in the first quarter of next year, and there shouldn't be much resistance. Casper Sleep shareholders still need to vote in favor of the deal, but officers, directors, and affiliated investors who own 28% of the outstanding Casper Sleep shares have agreed to sign off on the transaction.

Someone sleeping on a Casper Sleep pillow and mattress.

Image source: Casper Sleep.

Don't let the bed bugs bite

Casper Sleep had high hopes when it filed to go public in January of last year. Underwriters were looking to price the offering as high as $19, but with the COVID-19 crisis starting to swirl overseas, the direct-to-consumer mattress retailer had to settle for an IPO at $12 in early February. In retrospect, even that price was too high. The stock has spent most of its 21 months of trading in the single digits. 

A string of quarterly losses and slowing top-line growth found it losing traction with investors. The stock had fallen by more than 70% from its IPO price by the time the Monday morning buyout was announced. 

Casper Sleep investors can't be greedy. This isn't likely to turn into a bidding war. Shareholders also might have caught a break. Casper Sleep had scheduled the release of its third-quarter results for Monday afternoon. It decided to announce the fresh financials along with the buyout news in the morning, canceling its earnings call in the process. 

It wasn't an encouraging report. Revenue rose roughly in line with expectations, but Casper Sleep posted a larger deficit than analysts were forecasting. It's unfortunately something that we've seen here in three of the past five quarters. Getting out at a 94% premium and posting another bottom-line miss is as good as it's going to get for Casper Sleep stakeholders. 

This won't be the end for Casper Sleep. A private equity firm wouldn't buy the out-of-favor bedding specialist unless it thought it could turn Casper Sleep around, something that's easier done as a private company away from the market's quarterly judgment calls. The market proved to be too competitive, and profitability too elusive. A public company can typically arm itself with fresh capital through a secondary offering, but with Casper Sleep trading at $3.55 at the end of last week, it wasn't going to fool underwriters and investors a second time. 

This story will end as well as it could have for an otherwise broken IPO stock. It can close its eyes, dream for a change, and ideally wake up in a few months somewhere new.

Rick Munarriz 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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