A (Bizarre) Tale of Two Mattress Makers: SCSS Versus TPX

Jan 25, 2013 9:32:18 AM PST | 194 View(s) | No Comment(s) - Post a Comment Rating

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StockHQ:

SCSS
$22.00 -$0.13 -0.59%
TPX
$47.14 -$0.76 -1.59%

Though no two companies are exactly alike, one would think that two companies in the same industry would be quite similar, dealing with the same problems and seeing the same upsides as one another. When it comes to mattress companies Select Comfort Corp. (NASDAQ:SCSS) and Tempur-Pedic International Inc. (NYSE:TPX), however, one would be wrong to assume any similarities other than the obvious one - they both make mattresses. Indeed, the differences are almost confounding, beginning with their respective stocks, yet not ending with last quarter's results.

First and foremost, Tempur-Pedic International Inc. shares are up a whopping 8% today, firmly convincing any lingering doubters that the recovery effort the stock's been making since last May is taking hold. In 2012 (mostly between March and June), TPX plunged from $87 to a lows around $21 after the company acknowledged its growth was slowing and new competitors were taking a toll. Since last June, though, Tempur-Pedic shares have more than doubled in value, with more than a third of that move coming with today's pop.

Select Comfort Corp. shares, on the other hand, are off by 18% today, bringing the five-month selloff to a total loss of 32%. It's a diametrical opposite of the success SCSS was seeing over the course of 2011 and early 2012, when the stock rallied 270% before topping out around $34.00 in March of last year. Shares dipped to $19 by June of last year before bouncing back to $34 again in September, but this time around it's not looking like there's going to be another rapid recovery. The culprit for the weakness since the fall of last year (and today in particular)? Missing its revenue estimate for last quarter.

The opposing moves from TPX and SCSS over the past year or so aren't really the bizarre part of this story, however.

Yes, Select Comfort fell short of revenue expectations, driving $220.6 million in sales rather than the expected $228.9 million. And yes, Tempur-Pedic beats its earnings estimates, booking a profit of $0.60 per share rather than the average estimate of $0.55. Sales of $341.1 million were higher than forecasts of $338.9 million too. It's too often forgotten, however, that success is all relative, and usually depends on your perspective.

Though TPX topped estimates on both the sales and earnings front, net sales were still off by 7% on a year-over-year basis. And, on a full-year basis, TPX still fell short of annual estimates for both income and sales. Granted, Tempur-Pedic shares are trading at a much more palatable forward-looking P/E of 13.3, so there's room for a little more valuation. But, 8% in one day and a near-double in price in just a few months doesn't exactly leave much room for a lot more upside.

Meanwhile, SCSS is trading at only 10.0 times its forward-looking earnings, and despite falling short of revenue estimates last quarter, the company just posted its best-ever quarterly and annual sales totals.

Just a little perspective before anyone else decides to follow the crowd. Then again, if the market's willing to make buy/sell decisions now, there's no assurance that they'll price either of these stocks logically in the future. Make no mistake though - the value for SCSS is there, even of the stock doesn't imply it is right now.

Bryan Murphy is a paid contributor of the SmallCap Network. Bryan Murphy's personal holdings should be disclosed above. You can also view SmallCap Network's complete disclaimer and disclosure.