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Buy Soaring & Still Cheap Purple Stock on Coronavirus E-Commerce Growth?

Benjamin Rains
·4 min read

Purple Innovation PRPL shares have skyrocketed since early April to easily outpace the stay-at-home standouts such as Zoom ZM and Peloton PTON. The bed-in-a-box mattress firm has expanded its offerings and its direct to consumer business surged during the first quarter.

Purple’s Pitch

Purple is a mattress startup that refers to itself as a “digitally-native vertical brand.” This captures some important buzzwords during the Amazon AMZN age and helps it compete with other direct-to-consumer focused companies such as Casper Sleep CSPR, Leesa, and others.

The company is part of the broader mattress-in-a-box industry and it boasts that its grid-based beds and more are “instantly soft where you want it, firm where you need it, and comfortably cool all night.”

PRPL became publicly traded a few years back in a somewhat rare fashion. Purple merged with a publicly traded special purpose acquisition company called Global Partner Acquisition Corp. Today, Purple’s offerings include mattresses, pillows, cushions, bed frames, and more, and they can all be ordered directly online. The mattresses and more are also found in various stores and showrooms around the country.

The stock has climbed 250% since April 1 to crush Zoom’s 87% climb and stationary bike giant Peloton’s 100%. The nearby chart showcases Purple’s recent strength is part of a 12-month push that has seen it climb roughly 160% to crush the S&P 500 and Tempur Sealy’s TPX sideways movement.

PRPL closed regular trading Wednesday at $17.95 a share, which puts it about $1 off its recent highs. Despite its run, Purple trades at just 1.5X forward 12-month Zacks sales estimates. This marks a discount against its industry’s 2.1X average and Pelton’s 6.2X.

 

 

 

 

 

 

 

 

 

 

Don’t Sleep On It?

Purple’s fiscal 2019 revenue jumped 50% to $428.4 million, which topped FY18’s 45% sales expansion. More recently, its Q1 FY20 sales climbed over 46% for the period ended on March 31. More specifically, PRPL’s higher-margin direct-to-consumer sales climbed 50% to account for 66% of total Q1 sales, up from 64%.

Despite the strength and its growing DTC businesses, the firm said the coronavirus “significantly disrupted” its plans. CEO Joe Megibow said in prepared remarks on May 11 that it was “scaling back mattress production, furloughing employees, postponing investments in capacity and retail showroom expansion...”

But as one might assume, Purple’s DTC unit boomed during April, with non-essential retail stores closed and people confined to their homes. “Our recent actions have contributed to a strong start to the second quarter highlighted by a triple digit percentage increase in DTC sales and significant cash generation for the month of April,” Megibow continued.

 

 

 

 

 

 

 

 

 

Bottom Line

Our current Zacks estimates call for Purple’s second quarter sales to skyrocket 74% to reach $179.3 million. Meanwhile, its full-year fiscal 2020 sales are projected to jump another 44% higher to hit $616.9 million.

PRPL’s adjusted Q2 earnings are also expected to pop 11%. The firm’s FY20 EPS figure is projected to slip 56% to $0.63 a share. Despite the expected setback, Purple’s earnings revisions have soared recently to help it earn a Zacks Rank #1 (Strong Buy).

Purple is also part of a highly-ranked Zacks industry and it might be worth buying as both a near-term and a longer-term bet on the next generation of retail that the coronavirus has highlighted. And let’s not forget that beds are hardly a trendy purchase as the likes of Peloton might turn out to be.

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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Tempur Sealy International, Inc. (TPX) : Free Stock Analysis Report
 
PURPLE INNOVATION, INC. (PRPL) : Free Stock Analysis Report
 
Zoom Video Communications, Inc. (ZM) : Free Stock Analysis Report
 
Peloton Interactive, Inc. (PTON) : Free Stock Analysis Report
 
Casper Sleep Inc. (CSPR) : Free Stock Analysis Report
 
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