Psst! Hey, buddy, want to buy some Dell (NASDAQ:DELL)?

No, not the floundering stock you read about today -- the company whose dominance in the world of personal computers has been challenged by Hewlett-Packard (NYSE:HPQ), and is regularly mocked on television in commercials from Apple (NASDAQ:AAPL). I'm talking about Dell, circa January 1990. Dell priced at a split-adjusted $0.05 per share. A Dell that's today worth more than 500 times that 1990 price.

We're fresh out of time machines
Unfortunately, that's the case. And absent a time machine, or a particularly generous counterparty on your trade, the chances of buying Dell stock for a nickel today are pretty slim. But in this week's edition of our recurring "Best Stock for 2007" feature, I've got a similarly great idea for you -- a retailer that in many respects imitates Dell's business model in an entirely different sphere of business: bedding.

Rather than manufacture beds, stack them in warehouses, wholesale them to retailers, and collect payment months after they've been sold, this company turns the retail process on its head -- just as Dell did -- by taking orders ahead of time and building the product only when a buyer's cash is in hand. In so doing, the company operates with minimal inventory. Its requirements for bricks-and-mortar points of sale are just as spartan, with most sales being conducted through tiny stores inserted into the nooks and crannies of America's shopping malls. And like Dell, the company achieves that retailing rarity: a negative cash conversion cycle -- meaning it gets paid first, and then delivers the goods.

The company is Select Comfort (NASDAQ:SCSS), and it just happens to be one of Tom Gardner's May 2004 recommendations for Motley Fool Hidden Gems. A pioneer in the market for adjustable air-chamber mattresses, Select Comfort aims to improve the way America sleeps by selling it on the concept of (and selling, period) air mattresses as an alternative to the old innerspring mattress standard.

Buy the numbers
But is a revolutionary product reason enough to buy a stock? Hardly. I can easily think of a half-dozen companies hawking space-age technology -- stem cells, fuel cells, and wearable computers to name just a few -- that have seen their stock prices plunge to Earth in recent years. The reason Select Comfort stands out from the crowd of also-ran stocks is grounded securely in its numbers -- specifically, in its frenetic cash generation and superb growth rate. When stacked up against other bedding companies, Select Comfort is easily the best of the bunch, relatively, and just plain cheap, objectively:


Enterprise Value

Free Cash Flow

Growth Rate


Select Comfort

$887 million

$61.2 million



Tempur-Pedic (NYSE:TPX)

$2.17 billion

$115.4 million



Sealy (NYSE:ZZ)

$2.14 billion

$37.8 million



Nearly three years ago, in a pair of columns titled "Panning for Gold" and "7 Steps to Finding Gems," I laid out my own system for finding superior stocks in the sphere of computer hardware, in software, in retail, you name it. Over the years since then, I've become convinced that a company selling for an EV/FCF/G ratio (meaning the business value, divided by cash profits, divided by the projected rate of growth of those profits) as low as Select Comfort's will more likely than not reward its investors.

When you combine Select Comfort's current bargain-basement price with a proven business model like Dell's, and in an industry like bedding, which has never seen its like before, I'm confident in predicting that Select Comfort will prove to be the best retail stock for 2007.

And it's not just me saying that, either. Over on the Fool's new stock-evaluation service, Motley Fool CAPS, nearly 3,000 investors have combined to vote Select Comfort a four-star stock on a scale of one to five. It has garnered 2,829 outperform ratings, compared to just 118 underperforms, with a total of 947 of our All-Star raters giving it the thumbs-up.

But it's not about what I say or what others are saying. It's about what you have to say. Whether you want to correct our misconceptions -- or just shout "me, too!" -- you, too, can rate Select Comfort (and more than 3,400 other companies) on CAPS. Just put your rating into CAPS to help us pick the best retailer for 2007.

Go back to the beginning to see what other retail stocks are in the running for our CAPS contest.

Dell is both a Stock Advisor and an Inside Value recommendation. Check out either newsletter service free for 30 days.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked 109 out of more than 20,000 raters.