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Tempur Sealy vs. Casper: Which Mattress Stock is a Better Buy?

An increased focus on improving living spaces to make leisure and remote working more comfortable has driven a surge in consumer spending on home improvement accessories, including beds, mattresses and furniture. The trend will likely boost the sales of leading mattress companies Tempur Sealy International (TPX) and Casper Sleep (CSPR). They are continuously innovating their products to better serve their customers. We think their robust global manufacturing capabilities and industry-leading brand value should allow them to increase their market share and achieve higher profitability. But let’s find out which of these stocks is a better buy right now.

Tempur Sealy International, Inc. (TPX) and Casper Sleep Inc. (CSPR) are two popular manufacturers and distributors of bedding products that operate in  the United States, Canada and internationally. TPX delivers  mattresses, adjustable foundations, and  other products, such as pillows, sheets, and other accessories. CSPR offers sleep-centric products and services including  mattresses, pillows, sheets, duvets, and bedroom furniture.

As remote working trends continue to gain popularity, individuals are opting for more comfortable furnishings and bedding to make their indoor lifestyles more comfortable and convenient. The trend has driven  a large surge in demand for home improvement products and accessories. With more consumers seeking to repurpose their living spaces, mattress brands  TPX and CSPR are expected to witness strong sales in the near term.

While TPX gained 74.2% over the past six months, CSPR returned 5.3%. In terms of past year performance, TPX is the clear winner with 84.8% gains versus CSPR’s negative returns. But which of these stocks is a better pick now? Let’s find out.

Click here to checkout our Retail Industry Report for 2021

Latest Movements

Last month, TPX unveiled an all-new, expanded mattress portfolio that includes Sealy Essentials, Posturepedic and Posturepedic Plus product lines. This new line-up will provide enhanced support and durability and will make it even easier for its customers to find the appropriate Sealy mattress for their needs at affordable prices.

In November, TPX’s Tempur-Pedic brand was ranked #1 in customer satisfaction in  the retail mattress category in the United States in the J.D. Power 2020 Mattress Satisfaction Report. This recognition should  boost the company’s brand name. The company remains committed to delivering unparalleled products and services to its consumers.

Last month, CSPR expanded its executive leadership team with the appointment of  Charles Liu as Chief Operating Officer, Dara Williams as Chief People and Diversity Officer, and George Poulios as  Vice President of Retail, Real Estate and Store Development. The company believes that their critical skills and business know-how will help  CSPR  improve diversity and  scale the business  to better serve its customers.

In November,  the company entered a partnership with fashion retailer Nordstrom, Inc. (JWN) to allow its customers to buy CSPR’s top-rated mattresses and sleep accessories online at nordstrom.com and in-store at select Nordstrom retail locations. This is designed to  extend the company’s sales channels to expand its retail distribution.

Recent Financial Results

In the fourth quarter, ended December 31, 2020, TPX’s total net sales grew 21.3% year-over-year to $1057.0 million, with an increase of 20.6% in its North America business segment. The company’s gross profit increased 25.6% year-over-year to $485.2 million, while its international gross margin improved 150 basis points over this period. Its net income rose 213.2% from its  year-ago value to $144.7 million.

CSPR’s revenue increased 18.4% year-over-year to $150.3 million in the fourth quarter ended December 31, 2020. Its  gross profit grew 24.7% from the prior-year quarter to $75.34 million, while its gross margin rose 252 basis points from the year-ago value to 50.1%. However, the company reported an operating loss of $13.94 million and a net loss of $15.03 million.

Here TPX is in an advantageous position.

Past and Expected Financial Performance

TPX’s revenue and total assets grew at a CAGR of 10.8% and 7.1%, respectively, over the past three  years.

Analysts expect the company’s revenue to increase 21.2% in the current quarter, 17.4% in the current year and 5.4% next year. TPX’s EPS is expected to grow 51.5% in the current quarter, 27.2% in the current year and 11.1% next year. Furthermore, its EPS is expected to grow at a rate of 22.9% per annum over the next five years.

In comparison,  CSPR’s revenue and total assets grew at a CAGR of 25.6% and 13.1%, respectively, over the past three years .

Analysts expect CSPR’s revenue to increase 12% in the current quarter, 19.2% in the current year and 15.6% next year. The company’s EPS is expected to grow 55.7% in the current quarter, 43.6% in the current year and 53.2% next year. Also,  CSPR’s EPS is expected to grow at a rate of 17.8% per annum over the next five years.

Profitability      

TPX’s trailing-12-month revenue is more than seven  times CSPR’s. But CSPR is more profitable with a gross profit margin of 51.1% versus TPX’s 44.7%.

However, TPX’s ROE and ROA of 80.1% and 10.2%, respectively, compare favorably with CSPR’s negative returns.

Valuation

In terms of trailing-12-month price/sales, TPX is currently trading at 2.04x, 204.5% higher than CSPR, which is currently trading at 0.67x. Also, its trailing-12-month ev/sales of 2.41x is 249.3% higher than CSPR’s 0.69x.

Though TPX looks much more expensive than CSPR, it’s worth paying this premium considering TPX’s higher growth potential.

POWR Ratings

TPX has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. However, CSPR has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.

Both TPX and CSPR have a Growth grade of B, which is consistent with their increase in earnings and revenues over the past year.

In terms of Quality Grade, TPX has a B given its higher profitability. Here, the bleak prospect of CSPR is evident in its Quality Grade of C.

Also, TPX has a Sentiment Grade of B, which is in sync with  analysts’ expectations about its earnings and revenue growth. In comparison, CSPR has a Sentiment Grade of C.

Of the 64 stocks in the A-rated Home Improvement & Goods industry, TPX is ranked #13 while CSPR is ranked #59.

Beyond what I’ve stated above, our POWR Ratings system also rates both TPX and CSPR for Momentum, Stability, and Value. Get all TPX’s ratings here. Also, click here to see the additional POWR Ratings for CSPR.

The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.

The Winner

Both TPX and CSPR are good long-term investments considering their market dominance and robust product portfolio. However, TPX appears to be a better buy based on the factors discussed here.

While CSPR is a relatively cheaper option, TPX is a proven winner and its premium valuation is justified given its earnings growth potential and higher profitability.

Our research shows that the odds of success increase if one  bet on stocks with an Overall POWR Rating of Buy or Strong Buy. If you’re looking for other top-rated stocks in the Home Improvement & Goods industry, click here.

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TPX shares were trading at $34.29 per share on Friday morning, up $0.12 (+0.35%). Year-to-date, TPX has gained 27.26%, versus a 0.38% rise in the benchmark S&P 500 index during the same period.



About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

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