It took a few years, but it’s finally prime time for Purple Innovation (NASDAQ:PRPL) and Purple stock. Shares in the mattress disruptor have soared 161% year-to-date. And that is after falling by more than half during the novel coronavirus selloff in March.
So, what’s behind this epic rally as of late? Thank a perfect storm of tailwinds. At first, investors feared lockdowns would decimate this company’s sales. But, with its pivot to an e-commerce business model, Purple found a way not only to weather the storm, but to thrive in the stay-at-home-economy.
Second, with lockdowns ending coast to coast, its brick-and-mortar sales presence is back up and running. As wholesale orders bounce back, the company is leveling up, expanding its manufacturing capabilities.
In short, fundamentals are backing the recent rally. But, the party is far from over. With plenty left on the table, shares could head even higher. So, let’s dive in and see why this remains a solid e-commerce play.
Pandemic Tailwinds and Purple Stock
As I mentioned above, Purple figured out a way not only to survive, but thrive in the age of the coronavirus. With lockdowns, much of its sales presence was cut off. So, did it bide its time waiting for sales to return?
No, it fast pivoted into e-commerce. Moving from a traditional business model, where it sell its products to wholesalers, Purple adopted the direct-to-customer approach.
The gambit paid off. May 2020 direct-to-customer sales jumped 125% from the prior year’s month. And that’s no surprise, given how rapidly retail sales have shifted to e-commerce due to the pandemic.
Yet, don’t consider Purple stock a one-and-done coronavirus stock. Granted, millions stuck at home due to lockdowns was obviously a boost for mattress and pillow sales. But, again, things are just getting warmed up for the company.
How so? With most of its wholesale partners back in business, the growth train remains in motion. Marketing its wares via both brick-and-mortar and e-commerce sales channels, nothing is holding Purple back. And as seen from strong mattress sales numbers from the July 4 holiday weekend, demand for home goods like this company’s products remains high.
And, with another round of stimulus payments around the corner, expect said high home goods demand to continue. Simply put, there’s little to take the wind of the momentum in Purple stock right now.
Is PRPL the Best Mattress Play Out There?
Sure, the current environment is a perfect storm of tailwinds for Purple stock. But, I’m sure you’re wondering about the long term. What does this company have that gives it an edge against rival mattress startups like Casper (NYSE:CSPR)?
Pound for pound, it’s no contest. While Casper has continued to see sales growth, profitability remains elusive. On the other hand, Purple hasn’t had a problem in this arena. In fact, the company has recently seen strong improvement in its cash position.
With plenty of cash in its coffers, it can easily fund its ambitious expansion plans. As Purple gains momentum, it could quickly leave Casper in the dust. But knocking that e-commerce rival out of the way is only the start.
As the company continues to disrupt the mattress space, legacy players like Tempur Sealy (NYSE:TPX) are next in its sights. As mattress sales shift from in-store to e-commerce, names like Purple stand to win big. What about legacy rivals still built around the in-store business model? They’ll be playing catch-up.
But, what about valuation? Investors concerned about valuation don’t have to hold their nose before buying. Sure, on a price-earnings basis, Purple stock isn’t cheap. Shares today trade at a forward P/E ratio of 30.6 times. But, when adjusting for growth, that’s not too far above Tempur Sealy’s forward multiple of 22.7 times. Other rival Sleep Number (NASDAQ:SNBR) has a forward value of 17.3 times.
If the company can keep sales growth in motion, margins are more than likely to expand. And with the potential for increased earnings down the road, the stock’s current valuation is more than reasonable.
Despite Epic Rally, Purple Stock Remains a Buy
Sure, those who saw what was happening, and bought into Purple stock at its lows, are sitting on massive gains right now. But, that doesn’t mean things have peaked for this budding mattress king. Far from it.
The short-term pandemic tailwinds are giving way to long-term e-commerce tailwinds. And the shift from in-store to online sales is becoming even more pronounced in the mattress space. As I said above, there is very little to rain on Purple’s parade right now.
A solid e-commerce play, and hands down the best mattress stock out there, I remain bullish on Purple stock.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.
