Is it time to buy Motley Fool Hidden Gems recommendation Select Comfort
Fellow writer Stephen D. Simpson has already covered how Tempur revised sales and earnings guidance downward for 2005. Like Motley Fool Income Investor recommendation La-Z-Boy
Ah, and speaking of the competition, let's look at Select Comfort. Just five trading days ago, Foolish contributor Rich Smith was covering Select Comfort's announcement that it expected to approach 12% same-store sales growth for the year, and that it would exceed its previously projected 15% to 20% sales growth and 20% to 25% earnings growth in both the third quarter and the full year.
That wasn't even the pearl in Rich's review. At the low end of the company's earnings guidance ($1), income per diluted share would increase by a whopping 25%. At the high end ($1.08), it's a massive 35% gain.
That good news was enough to send Select Comfort up 8% to $20.84 a share. Today's Tempur news is probably the reason Select Comfort is down 8% to -- you guessed it -- almost the same per-share price as before its earnings guidance increase. It's now priced at about 18 to 19 times 2005 guidance.
Before burying me in emails screaming that Tempur is priced at a bargain 11.1 times fiscal 2005 earnings -- which might be true if the company isn't seeing a plateau in its business -- consider this. Tempur has total debt of $289.7 million, $28.4 million in cash, and trailing annual free cash flow of $49.8 million. Select Comfort has no debt, $58.8 million in cash, and trailing annual free cash flow of $31.8 million. Personally, I like Select Comfort's financial strength and consistent growth just a little better, despite what some might call a less attractive valuation.
There you have it. Select Comfort and Tempur-Pedic's shares are both down today. The former is growing steadily; the latter is using numerous nouns to describe why it can't hit its own earnings targets. Which would you rather own?