A maker of next-generation mattresses is waking up in a major way, but that doesn't mean that finding a reason for Sleep Number's (SNBR 6.48%) recent ascent is as easy as counting sheep. The stock soared 50% in June. And it climbed another 4% in the first week of July, even as the broader market staged a modest retreat. 

Yet outside of a press release in early June that was more aspirational than informational in nature, investors haven't officially heard from Sleep Number management since late April, when the company posted uninspiring first-quarter financial results. The guidance update management offered at that point was not upbeat. In response to the "messy" results, Peter Keith of Piper Jaffray slashed his price target from $36 to $30, and kept his rating on the shares at neutral. 

So in a desert of news, what was behind the stock's June surge?

Counting cheap

Before we get too giddy about last month's 50% pop -- or the stock's 57% rise since the beginning of June -- let's point out the timing of the bump. Sleep Number's stock price hit a three-year low of $17.50 on June 1, near the starting line of this spectacular short-term chart. Zoom out and you'll see that the shares are still down by more than 40% from their 52-week high, and by more than 80% from the all-time high they reached in spring of 2021. 

Sleep Number's bedding proposition is unique. Its air-chambered mattresses come with adjustable firmness settings, and its newer premium smart-bed models will even monitor the quality of your sleep with high-tech tools that can make adjustments at the first signs of restlessness. 

The stock's meteoric rise -- it was nearly a 10-bagger between the market's initial COVID-19 sell-off in spring 2020 to its peak a year later -- displayed the same frothy exuberance as many of the early winners of the pandemic. The bullish thesis was that folks were spending a lot more time at home, so upgrading lumpy old-school mattresses would become a priority.

Reality didn't match the hype. Net sales rose a modest 9% in 2020, and climbed 18% in 2021 to give the company a record top-line result. It's been largely disappointing since then, as revenues have contracted on a year-over-year basis in four of the past six quarters. 

A couple on a Sleep Number mattress. Only one is awake.

Image source: Sleep Number.

When Piper Jaffray's analyst called Sleep Number's latest quarterly results "messy," he wasn't talking about anything necessarily untidy at the company itself. It has just been hard to get a fair read on the company based solely on its reported results. 

Some mattress makers suffered from a ship shortage early in the pandemic, but Sleep Number went on to experience a chip shortage more than a year ago. Its next-gen beds make use of semiconductors, and the supply chain shortage in the chip industry left it unable to secure key components. Once that problem was licked, the clearing of its backlog of orders padded its sales results. After that, waning demand -- in a tricky market for high-priced home products -- took the baton. 

Rising interest rates and recessionary fears are keeping customers away. Sleep Number beds aren't cheap. They may start in the three figures, but the average price of a Sleep Number 360 smart bed is a hefty $5,848 (a 19% increase over the past year). 

The 2023 guidance that Sleep Number debuted in February -- and repeated in April -- predicts that net sales will decline by a mid-single-digit percentage this year. Management expects gross margin to improve by more than 150 basis points, and earnings per share to clock in between $1.25 and $2 for 2023. If Sleep Number hits the midpoint of that bottom-line range, investors who buy now will be picking up Sleep Number for 17 times this year's earnings and just 13 times analysts' consensus profit targets for next year. 

The stock remains reasonably cheap despite last month's gains, and it wasn't just the starting line that made June special. Investors are starting to rally behind housing-related plays again. Some homebuilders, real estate portal operators, and even home flippers have more than doubled so far in 2023. The housing market still has some obstacles to overcome, but momentum is favoring consumers spending on their home lives again. Investors may want to wait until they see revenue growth return before crowning Sleep Number the darling of mattress stocks, but for now, it seems as if the worst of its shareholder nightmares is over.