Every investor can appreciate a stock that consistently beats the Street without getting ahead of its fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with improving financial metrics that support strong price growth. Let's take a look at what Tempur-Pedic's
What the numbers tell you
The graphs you're about to see tell Tempur-Pedic's story, and we'll be grading the quality of that story in several ways.
Growth is important on both top and bottom lines, and an improving profit margin is a great sign that a company's become more efficient over time. Since profits may not always be reported at a steady rate, we'll also look at how much Tempur-Pedic's free cash flow has grown in comparison to its net income.
A company that generates more earnings per share over time, regardless of the number of shares outstanding, is heading in the right direction. If Tempur-Pedic's share price has kept pace with its earnings growth, that's another good sign that its stock can move higher.
Is Tempur-Pedic managing its resources well? A company's return on equity should be improving, and its debt to equity ratio declining, if it's to earn our approval.
By the numbers
Now, let's take a look at Tempur-Pedic's key statistics:
TPX Total Return Price data by YCharts
Passing Criteria |
2.5-Year Change* |
Grade |
---|---|---|
Revenue Growth > 30% | 76.1% | Pass |
Improving Profit Margin | (25.7%) | Fail |
Free Cash Flow Growth > Net Income Growth | 60.1% vs. 139.6% | Fail |
Improving Earnings per Share | 172.3% | Pass |
Stock Growth (+ 15%) < EPS Growth | 29.2% vs. 172.3% | Pass |
Source: YCharts. *Period begins at end of Q4 2009.
TPX Return on Equity data by YCharts
Passing Criteria |
2.5-Year Change* |
Grade |
---|---|---|
Improving Return on Equity | 304.9% | Pass |
Declining Debt to Equity | 225.9% | Fail |
Source: YCharts. *Period begins at end of Q4 2009.
How we got here and where we're going
With four of seven possible passing grades, Tempur-Pedic offers a reasonable, but not strong, case for its value. However, the company's certainly found itself with a more attractive valuation now that its stock's growth has fallen far below that of its bottom line. At the beginning of our tracking period, Tempur-Pedic's P/E was 31. It's since shrunk to less than a third of that earlier level, with a P/E just under double digits today.
Tempur-Pedic made waves earlier this month by announcing the acquisition of smaller rival Sealy
Tempur-Pedic's already the best value in the mattress sector right now. Mattress Firm's
Putting the pieces together
Tempur-Pedic has some of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.
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