This is getting old. Every time Hidden Gems selection Select Comfort (NASDAQ:SCSS) gets settled in and ready for a long night's rest full of dreams of two-times-in-three-years capital gains, along comes a bit of bad news, which pulls down the sheets and pushes the stock out of bed with a resounding "Kerplunk!"
Back in July, the news was that sales were going to fall short of expectations by a couple of percentage points (similar to today's news). The stock lost 26% within a few hours of trading.
A few months later, a local television report of mold on an air mattress sent Select Comfort's stock down 22% in a single day, and it continued to fall as the news spread. (Um, Mr. Market? Got news for ya -- mold grows everywhere. On plastic mattresses. On coiled spring mattresses. Why, I even get a funny smell in my truck when I forget and leave the windows down and it rains. Does this mean we should all run and short General Motors (NYSE:GM)?)
Today, undaunted by past experience, Select Comfort took the shareholder-friendly step of updating investors on its revised sales expectations. Management lowered sales projections by about 6%, predicting that in comparison to Q4 2003's numbers, sales would rise about 15%, rather than about 22%. That's right, there was no news of a shortfall in profits and certainly no news of a loss. Just a slowdown in sales for a single quarter. Yet the stock has cratered, down more than 21% as of this writing.
To this Fool's mind, that makes no sense. A three-month slowdown in sales has almost no bearing on a company's ability to generate long-term revenue and profit streams. Take the news to its logical extreme. Suppose Select Comfort decided to close down manufacturing, shutter its stores, and take a corporate winter vacation, say a Carnival (NYSE:CCL) cruise, for all of next quarter, returning only at the beginning of Q2 2005. That would result in a sales decline, both sequentially and year-on-year, of 100%. Would that mean the company's stock price should be reduced to zero?
Of course not -- because the sales decline, or in this case, the sales shutdown, would be only temporary. The farther out you go in time -- one year, five years, even 20 -- the less and less relevant that single quarter's lack of sales becomes, and the less of an impact it has on the company's long-term generation of cash.
So don't let Mr. Market's nightmares spook you out of this bedding stock. If you're holding Select Comfort already, grab those sheets tight, pull 'em up over your head, and go back to bed. Chances are, if you can sleep through this "bad news," by the time you wake up, the sun will be shining again.
For more news on Select Comfort and its stock's bumpy ride, read:
- Select Comfort Monthly Recap
- Numbers to Sleep On
- Moldy Mattress Sinks Select Comfort
- 10 Top Winners Since 9/11
Fool contributor Rich Smith has no position in any of the companies mentioned in this article.
