Purple Innovation, Inc. $PRPL, would it rise again?

Overview of Purple Purple Innovation, Inc. (PRPL) designs and manufactures mattresses, pillows, and cushions. It also offers sheets, mattress protectors, bed frames, seat cushions, and weighted blankets. The company markets and sells its products through direct-to-consumer online channels, retail brick-and-mortar wholesale partners, and third-party online retailers, as well as through its factory outlet and company owned showrooms. Purple Innovation, Inc. was founded in 2010 and is headquartered in Lehi, Utah. Recent PRPL stock history Purple stock is down from more than $40/share in February to now $11.75/share. Right now, the stock is trading near its 52-week low share price.  It has lost more than 35% since November and almost 70% from the February peak. So, why did the stock fall recently? In November, Purple Innovation reported Q-3 results with an EPS of (-0.07) which missed the analysts’ expectations of 0.15 in EPS. The company generated $170.78M in revenue which also missed the analysts’ expectations of $198.33M. Revenue fell short by 8.7% year over year in the third quarter of 2021 versus the same period in 2020. Although wholesale revenue was higher by 9.6%, the company's direct-to-consumer sales dropped 15.9%, more than offsetting that positive. On top of that, CEO Joe Megibow resigned last week, a move that comes just four months after Chief Financial Officer Craig Phillips departed. After Joe’s departure as CEO, Robert DeMartini will be acting CEO. Robert was the president and CEO of New Balance Athletics from 2007 to 2019.  The company also indicated recently that revenue and adjusted EBITDA for the year will be at the lower end of its prior guidance. Last month, the company gave a forecast of $720 million to $740 million in sales and $15 million to $25 million in adjusted EBITDA for the fiscal year 2021. Positive outlook for Purple Innovations stock price Now coming to positive points, Purple has a solid product lineup of Mattresses, Pillows, Seat cushions, bedding, and Bed Frames. The unique thing about the company is, it is vertically integrated. It designs, manufactures, and packages mattresses in-house. The company has a unique mattress design and seems it has engineered the manufacturing machines to produce these mattresses. According to the company, these machines are unique and extremely difficult to replicate. The company has filed 220+ granted/pending patents for its product design and manufacturing equipment. The company has achieved #1 in customer satisfaction award 2 years in a row by J.D.Power.  Source: Purple The company has a track record of generating an average of 78% revenue growth every year from 2016 to 2020. The company also showed good revenue growth till Q-1, 2021 but the growth slowed down during the past 2 quarters. I believe the new CEO could bring a fresh perspective to the company as he has good experience in the consumer industry, which ultimately could accelerate the revenue growth that has been slowed down lately. Out of last 4 quarters company generated net profit in last 3 quarters. This proves this business can be profitable with high revenue growth. Purple Valuation and future growth Purple gave guidance in its investor-presentation stating that it is planning to achieve $2-2.5B in annual net revenue in 3-5 years from now with Adjusted EBITDA of 14-15%. For the conservative guidance, if we assume it will have $2B in net revenue after 5 years with 14% in EBITDA then the company would generate $280M in adjusted EBITDA by 2026. Now, if we consider the company’s competitors in the space such as Sleep Number Corporation (SNBR) and Tempur Sealy International, Inc. (TPX), they trade around 10 Enterprise Value/ EBITDA multiple. If we use the same multiple for the Purple, then that would make Purple’s enterprise value about $2.8B. Since Purple doesn’t have a significant debt vs its cash level, we can take the market cap as the same as Enterprise value. So, purple would be valued at about $2.8B by 2026. The company is currently valued at about $786M now so that is a 256% upside from this point in terms of market cap. Purple has diluted stockholder’s equity every year in the last 4 years, and I believe it will keep doing so until it can sustain its growth with the profit. If we consider an average 15% equity dilution for the next 5 years, then share price growth would be around 77% in 5 years or an average 12% return per year. Right now, the stock is trading around $11.75/share so in 5 years if everything goes well the Purple could be trading around $21/share. To conclude, if Purple can come out stronger from this headwind and if it can successfully achieve at least a $2B revenue target with 14-15% adjusted EBITDA in 5 years then it can provide decent to a high return to the investors. Note- All the numbers and ratios are taken from Yahoo Finance or Purple Investor Relations. This is not financial advice. It is just a personal opinion so please do your own research before making an investment decision.

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Purple Innovation, Inc. $PRPL, would it rise again?

bullish

Overview of Purple

Purple Innovation, Inc. (PRPL) designs and manufactures mattresses, pillows, and cushions. It also offers sheets, mattress protectors, bed frames, seat cushions, and weighted blankets. The company markets and sells its products through direct-to-consumer online channels, retail brick-and-mortar wholesale partners, and third-party online retailers, as well as through its factory outlet and company owned showrooms. Purple Innovation, Inc. was founded in 2010 and is headquartered in Lehi, Utah.

Recent PRPL stock history

Purple stock is down from more than $40/share in February to now $11.75/share. Right now, the stock is trading near its 52-week low share price. It has lost more than 35% since November and almost 70% from the February peak.

So, why did the stock fall recently? In November, Purple Innovation reported Q-3 results with an EPS of (-0.07) which missed the analysts' expectations of 0.15 in EPS. The company generated $170.78M in revenue which also missed the analysts' expectations of $198.33M. Revenue fell short by 8.7% year over year in the third quarter of 2021 versus the same period in 2020. Although wholesale revenue was higher by 9.6%, the company's direct-to-consumer sales dropped 15.9%, more than offsetting that positive.

On top of that, CEO Joe Megibow resigned last week, a move that comes just four months after Chief Financial Officer Craig Phillips departed. After Joe's departure as CEO, Robert DeMartini will be acting CEO. Robert was the president and CEO of New Balance Athletics from 2007 to 2019.

The company also indicated recently that revenue and adjusted EBITDA for the year will be at the lower end of its prior guidance. Last month, the company gave a forecast of $720 million to $740 million in sales and $15 million to $25 million in adjusted EBITDA for the fiscal year 2021.

Positive outlook for Purple Innovations stock price

Now coming to positive points, Purple has a solid product lineup of Mattresses, Pillows, Seat cushions, bedding, and Bed Frames. The unique thing about the company is, it is vertically integrated. It designs, manufactures, and packages mattresses in-house. The company has a unique mattress design and seems it has engineered the manufacturing machines to produce these mattresses. According to the company, these machines are unique and extremely difficult to replicate. The company has filed 220+ granted/pending patents for its product design and manufacturing equipment. The company has achieved #1 in customer satisfaction award 2 years in a row by J.D.Power.

Source: Purple

The company has a track record of generating an average of 78% revenue growth every year from 2016 to 2020. The company also showed good revenue growth till Q-1, 2021 but the growth slowed down during the past 2 quarters. I believe the new CEO could bring a fresh perspective to the company as he has good experience in the consumer industry, which ultimately could accelerate the revenue growth that has been slowed down lately.

Out of last 4 quarters company generated net profit in last 3 quarters. This proves this business can be profitable with high revenue growth.

Purple Valuation and future growth

Purple gave guidance in its investor-presentation stating that it is planning to achieve $2-2.5B in annual net revenue in 3-5 years from now with Adjusted EBITDA of 14-15%. For the conservative guidance, if we assume it will have $2B in net revenue after 5 years with 14% in EBITDA then the company would generate $280M in adjusted EBITDA by 2026. Now, if we consider the company's competitors in the space such as Sleep Number Corporation (SNBR) and Tempur Sealy International, Inc. (TPX), they trade around 10 Enterprise Value/ EBITDA multiple. If we use the same multiple for the Purple, then that would make Purple's enterprise value about $2.8B. Since Purple doesn't have a significant debt vs its cash level, we can take the market cap as the same as Enterprise value. So, purple would be valued at about $2.8B by 2026. The company is currently valued at about $786M now so that is a 256% upside from this point in terms of market cap.

Purple has diluted stockholder's equity every year in the last 4 years, and I believe it will keep doing so until it can sustain its growth with the profit. If we consider an average 15% equity dilution for the next 5 years, then share price growth would be around 77% in 5 years or an average 12% return per year. Right now, the stock is trading around $11.75/share so in 5 years if everything goes well the Purple could be trading around $21/share.

To conclude, if Purple can come out stronger from this headwind and if it can successfully achieve at least a $2B revenue target with 14-15% adjusted EBITDA in 5 years then it can provide decent to a high return to the investors.

Note- All the numbers and ratios are taken from Yahoo Finance or Purple Investor Relations.

This is not financial advice. It is just a personal opinion so please do your own research before making an investment decision.

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