Since the onset of the COVID-19 pandemic, the continuing remote working environment has benefited the mattress industry. The industry has witnessed noteworthy growth because people have been buying more stuff for their homes driven by the work from home new normal. The global mattress market and U.S. mattress market are valued at approximately $81 billion and $17.3 billion, respectively.

The growth in the mattress market has been stimulated by an increasing number of online mattress and bedding retailers and the high effectiveness of e-commerce sites. The mattress industry has been adopting digital channels lately to keep up with changing consumer shopping habits. Approximately 62% of consumers prefer buying mattresses online due to convenience and better prices.

Given these factors, we think it may be profitable to invest in these quality mattress stocks: Tempur Sealy International, Inc. (TPX) and Sleep Number Corporation (SNBR). However, ongoing supply chain disruptions and 40-year high inflation levels are expected to adversely impact fundamentally bleak mattress stock Purple Innovation, Inc. (PRPL). Thus, PRPL is best avoided now.

Stocks to Buy:

Tempur Sealy International, Inc. (TPX)

TPX in Lexington, Ky., develops, markets, and sells bedding products internationally. It offers mattresses, foundations, adjustable bases, pillows, mattress covers, cushions, and other comfort products under the TEMPUR, Sealy, Comfort Revolution, and Stearns & Foster brands. TPX distributes and sells its products through third-party retailers, company-owned stores, e-commerce, and call centers.

TPX introduced Sealy Naturals last month. It is a new eco-friendly mattress collection made with responsibly sourced materials. The collection’s launch promotes sustainability and is reflective of the company’s environmental responsibility. TPX might reach new customers interested in natural and sustainable products and boost revenue streams.

Last December, TPX increased its share repurchase authorization to a total of $1.5 billion. "This newest share repurchase authorization represents approximately 15 percent of the company's current market capitalization. We expect to execute on this authorization while maintaining a leverage ratio below the mid-point of our long-term target range of 2 to 3 times adjusted EBITDA," stated Scott Thompson, company’s chairman, and CEO.

For its fiscal 2021 third quarter, ended September 30, TPX’s net sales increased 20% year-over-year to $1.36 billion. Its gross profit increased 8.8% year-over-year to $577.10 million. The company’s operating income rose 38.6% from the same period last year to $249.80 million. TPX’s adjusted EBITDA increased 6.6% from its year-ago value to $297.60 million. The company’s adjusted net income grew 15.6% year-over-year to $179.6 million and its adjusted earnings per share increased 18.9% from the year-ago value to $0.88.

Analysts expect TPX’s revenue for its fiscal fourth quarter, ended December 2021, to come in at $1.45 billion, representing a 37.1% rise year-over-year. The Street expects the company’s EPS for the fourth quarter to be $0.96, representing a 43.3% increase year-over-year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.

Shares of TPX have gained 16.9% in price over the past year and closed Friday's trading session at $37.41.

TPX's POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

It has a B grade for Quality. It is ranked #23 of 61 stocks in the Home Improvement & Goods industry. Click here to see TPX ratings for Value, Growth, Momentum, Sentiment, and Stability.

Sleep Number Corporation (SNBR)

SNBR offers sleep solutions, products, and services in the U.S. The Minneapolis, Minn.-based company develops, markets, and sells bedding products, adjustable bases, temperature balancing products, and smart beds. SNBR sells its products directly to customers through online, retail, and wholesale channels. It operates in more than 602 retail stores in 50 states.

On Jan. 30, 2022, SNBR announced its most dynamic technology platform and unveiled a new 360 smart bed, which will proactively monitor and improve sleep health and smart furniture, enhancing the health and wellness features of the 360 smart bed. These innovations are expected to expand SNBR’s customer base and boost the company’s profits.

SNBR’s net sales increased 20.6% year-over-year to $640.29 million in its fiscal third quarter, ended Oct. 2, 2021. SNBR’s gross profit increased 16.5% year-over-year to $390.35 million. SNBR’s operating income rose 4.5% from the same period in 2020 to $72.74 million. SNBR’s adjusted EBITDA grew marginally year-over-year to $94.90 million. Its net income improved 4.7% year-over-year to $53.72 million. The company’s net income per share increased 24% from its year-ago value to $2.22.

The $601.20 million consensus revenue estimate for the fiscal fourth quarter, ended December 2021 represents a 5.9% year-over-year growth from the same period last in 2020. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.

SNBR has an overall B rating, which translates to Buy in our POWR Ratings system. It has a grade of A for Value and Quality. Within the Home Improvement & Goods  industry, it is ranked #21 of 61 stocks.

To see additional component grades of POWR Ratings (Growth, Stability, Momentum, and Sentiment) for SNBR, click here.

Note that SNBR is one of the few stocks handpicked by our Chief Value Strategist, Steve Reitmeister, currently in the POWR Value portfolio. Learn more here.

Stock to Sell:

Purple Innovation, Inc. (PRPL)

PRPL in Lehi, Utah, designs, develops, manufactures, and markets mattresses, pillows, cushions, and other bedding products. It provides sheets, bed frames, mattress protectors, seat cushions, and weighted blankets. The company sells its products through online channels, retail brick-and-mortar wholesale partners, third-party online retailers, and company-owned showrooms.

Last December, Bragar Eagel & Squire, P.C., a recognized stockholder rights law firm, announced that it was investigating PRPL. The firm is investigating whether PRPL violated federal securities law or has engaged in any unlawful business practices.

For its fiscal year 2021 third quarter, ended September 30, PRPL’s net revenues decreased 8.7% year-over-year to $170.78 million. The company’s gross margin declined 30.8% year-over-year to $61.08 million. PRPL’s operating income declined 127.1% year-over-year to negative $6.58 million. Its adjusted EBITDA declined 98.1% year-over-year to $563,000. And the company’s adjusted net income decreased 128.4% year-over-year to a negative $4.89 million. Its adjusted net income per share declined 125.9% year-over-year to negative $0.07.

The Street expects the company’s EPS for the fourth quarter, ended December 31, 2021, to come in at a negative $0.27, representing an 800% decline year-over-year. PRPL has missed consensus EPS estimates in three out of the trailing four quarters.

The stock has declined 54.7% in price year-to-date and 84.3% over the past year and closed Friday’s trading session at $6.01.

This bleak outlook is reflected in PRPL’s POWR Ratings. PRPL has an overall rating of D, which translates to Sell in our POWR Ratings system.

PRPL has a D grade for Stability and Quality and an F for Sentiment. It is ranked #54 of 61 stocks in the Home Improvement & Goods industry.

In addition to the POWR Rating grades we have stated above, one can see PRPL ratings for Growth, Momentum, and Value here.

TPX shares were trading at $32.00 per share on Tuesday morning, down $5.41 (-14.46%). Year-to-date, TPX has declined -31.96%, versus a -8.90% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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