It has been a difficult year for Casper Sleep (NYSE: CSPR) investors. The direct-to-consumer mattress seller saw its shares fall 30% in 2021 through Thursday’s close. The stock is down 64% since closing an initial public offering priced at $ 12 a share last year.
Casper Sleep stumbled early in his listed tenure. The underwriters were hoping to price the offering at $ 19 when it went public in February of last year. He had to settle for $ 12 and stocks have traded single digits for most of his public life.
The irony here is that the IPO of Casper Sleep came just weeks before the pandemic essentially forced us to return home. The shelter-in-place phase of the COVID-19 crisis has given us months to assess our homes or move to more comfortable digs, and suddenly furnishing expenses have climbed to the top of the priority list. We’ve seen the shares of online furniture retailers and manufacturers of adjustable ottoman and inner tube mattresses soar in 2020. Casper Sleep has not followed suit. It could have bounced back in 2021, but it didn’t materialize either. What happened? Let’s review the bad breaks Casper Sleep has faced this year – and what he needs to do to make his way to give his shareholders a good night’s sleep.
Throw and turn
Casper Sleep is doing much better than you would expect for a stock that has shed almost two-thirds of its IPO value. After seeing sales decelerate sharply over the past two years – dropping from 43% revenue growth in 2018 to 23% in 2019 and 13% last year – forecasts call for an acceleration in revenue growth with an increase of around 20% in 2021.
The bad news is pretty much everything else. Casper Sleep decided to end its European operations in the spring of last year, focusing its efforts on profitability closer to home. The losses have declined, but analysts don’t see the red ink ending anytime soon.
The market seemed to heat up again at the Casper Sleep story earlier this year, and in June the stock did something it had never done before. Casper Sleep shares hit their IPO price of $ 12, almost doubling since the start of the year. It obviously did not last.
The biggest dagger was the second trimester which looked so promising at first glance. Revenue rose 38% in its latest report. Forgo European operations that no longer exist and you get an even healthier 45% year-over-year increase in its North American business. The stock still took a double-digit percentage on the report. The company warned of slowing revenue growth to 26% for the third quarter and below 20% for 2021 as a whole.
Supply chain constraints – a common complaint these days – hamper its chances of meeting demand. The other end of the income statement is also weighed down by inflationary pressures on raw materials, freight and labor costs.
If you think the setbacks are temporary, there are obviously a lot of benefits here. It is a stock that has lost about two-thirds of its value since June, but its activity continues to grow at a double-digit percentage. Beyond its 72 retail stores and its website where Casper Sleep sells direct to consumers, its sales through retail partnerships are growing even faster. It is not ready to return to Europe, but last month it entered the Canadian market.
Casper Sleep can be valued like a penny stock these days, but it has a much longer lasting activity than most speculative investments traded at similar prices. If it can continue to expand its reach while managing its costs, it has a good chance of rebounding in the months and years to come.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.