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About Tempur Sealy
Let me be clear.
I am not one of those people who can run comfortably on four hours of sleep.
I’ve done that once and I won’t sugar coat it, I was a complete and utter nightmare to deal with the next day.
I’m not sure what it is, but if I don’t snag my eight hours of deep, REM-filled sleep, I’m not nearly as friendly or productive as I ought to be.
My friends make fun of my early, old man-esque bedtime, and I totally deserve it, but boy should they be glad that they don’t have to experience the four-hour sleep side of me.
I will not get into any further details.
One critical element of a good night’s sleep is undoubtedly the foundation on which you rest your weary bones, that of the mattress, and Tempur Sealy is in the mattress business. In fact, headquartered in Lexington, Kentucky, it is one of the world’s largest mattress manufacturers and sellers, owning iconic mattress and bedding brands such as Tempur-Pedic, Stearns & Foster, Sealy Posturepedic and Sealy itself, through these brands selling to the masses, both on a B2C (business-to-consumer) level as well as an enterprise, or B2B (business-to-business) level, including some of its corporate partners, many of which naturally include hotel brands and operators such as Marriott, Hilton, Wyndham, IHG, Best Western and a slew of others, and with this in mind, if our long-term, forward-looking (fact-based) assumptions regarding millennials and the following generations is even remotely accurate, say, over the span of the next few decades or so, more organic travel demand will lead to more properties being developed and more properties being developed unequivocally means more bedding and mattresses needed.
Additionally, we view the bedding category as one that is more recession proof than not, as people are far more willing to cut a plethora of other personal expenses before even coming close to considering not buying a comfortable mattress for themselves, not to also mention the fact that as smart technology continues being integrated into bedding (it ain’t my thing, but some people like it, I guess) as well as the greater overall movement of selfcare, a company such as Tempur Sealy can most certainly find ways in which it can capitalize on such prevailing trends, and I’m sure beef up its margins in the process given the new offerings it can unveil to all of its customers.
That’s a little information on Tempur, and with that, the good stuff, the financial analysis portion of today’s affairs, helping us better determine whether or not this company’s stock (NYSE: TPX) is worth seriously considering as a long-term investment, worthy of a spot in your ever so precious investment portfolio.
Tempur’s stock financials
First things first, Tempur Sealy is a $9.34 billion company with a share price of $53.79 while also being accompanied by a price-to-earnings (P/E) ratio of 25.99 as well as dishing out an annual dividend of $0.52, or $0.13 per quarter.
Given this early and rather initially uninteresting data, it can be gathered that Tempur Sealy’s share price is trading a bit ahead of itself at the time of this publication, as its present price-to-earnings ratio is pegged a few points higher than the commonly held fair value benchmark of 20, however, we think the discrepancy is small enough such that if the company’s recent annual revenue figures are growing at a brisk enough rate, slightly overpaying for said growth could most certainly be justified.
We will check on this momentarily, don’t you worry.
As it relates to the other bits of information, much like how we have felt in other recent stock analysis articles, a dividend usually doesn’t hurt, so long as the issuing company can reasonably afford to pay it out and potentially raise it incrementally in the years to come and it is doesn’t act as too much of a cash constraint for the company, particularly from the perspective of current and future growth areas and initiatives within.
The dividend is cool, we guess. Nothing to really write home about quite yet.
Regarding the company’s balance sheet, Tempur Sealy’s executive team is in charge of properly deploying and managing approximately $4.5 billion in terms of total assets while maintaining just about $4.2 billion in terms of total liabilities, which may initially deter many given how much its total liabilities measure up against its total assets, however, one must grapple with the fact or simply admit that Tempur Sealy is in a very, very inventory-heavy industry, therefore, this is one of those situations where so long as the company in question is technically total asset-heavy (even if not by the widest of margins), we aren’t generally going to be bogged down in anxiety, especially with such an established, scaled company like this one; it can more than likely afford to slowly but surely peck away at a good amount of its outstanding debts over the rest of the history of mankind.
Moving right over to the condition of the company’s income statement, Tempur Sealy’s annual revenues (measuring since 2019) experienced a defined spurt of growth and then proceeded to taper off and be just about as consistent as can be in the years that followed, specifically between and during 2021 and 2023. For example, the company’s revenues have grown from a relative base of $3.1 billion in 2019, $3.6 billion in 2020, leaping up to $4.9 billion in 2021, 2022 and, well would you look at that, 2023. It is our understanding that this growth was a result of continued organic demand for the company’s products but also a result of certain strategic partnerships and acquisitions closing, and the company is seemingly now back at it again with one of the world’s most prominent mattress retailers, Mattress Firm.
You’re pretty much never going to hear us complaining about consistent-to-growing annualized revenues, especially in the context of a more than established business and category such as Tempur Sealy and bedding, respectively.
Onto the company’s cash flow statement, Tempur’s net income and total cash from operations have both been positive and somewhat consistent throughout 2019 and 2023, with, for example, its total cash from operations ranging between $313 million (2019) and $722 million, as reported in 2022, which makes sense to a degree, as especially according to its recent revenues, the mattress industry is fairly predictable, however, given how equipment intensive this sector is, it makes general sense that a company such as this one would experience some periodic ups and downs in the cash it generates through its business operations.
Tempur’s stock fundamentals
As it relates to this company’s trailing twelve month (TTM) net profit margin and how it measures up with the industry’s comparable (or maybe not so comparable) average, according to the figures shown on TD Ameritrade’s platform, Tempur Sealy’s TTM net profit margin is listed as 7.53% to the industry’s respective average of 11.92%, which while unfortunate, we do believe is a classic case of a massive industry operator falling victim to its own size and scale.
Particularly, it is generally much easier for smaller, more naturally nimble operators (regardless of sector) to keep expenses and various costs relatively low, thus inherently maintaining the ability keep margins rather beefy (yeah, I know, that’s a weird way to describe margins, but you’re still reading so). Thus, we actually aren’t going to be losing much sleep at night (don’t sleep on these puns) given Tempur Sealy’s relative market share, however, we still hope that this company’s management team is continuously looking for ways to cut costs and not quality.
Finally, with respect to the company’s TTM returns on both assets and investments, Tempur’s (also according to TD Ameritrade’s platform) once again reflect that of an industry titan and behemoth, for worse, more than better. Specifically, the company’s TTM return on investment is pegged at 10.58% to the industry’s respective listed average of 14.50%, which, once again, isn’t all too large of a discrepancy, however, a discrepancy nevertheless, and while we hope the gap is closed in on in the not-so-distant future, it is simply understandable given this company’s prowess and footprint.
Should you buy Tempur Sealy stock?
There’s some good and bad, but definitely nothing immediately ugly about this firm, from where we stand.
Namely, the company’s balance sheet seems to be in good shape, it has been growing its revenues both organically and inorganically, its cash flows have been stable and even during certain periods growing in recent history, while its margins and core TTM return on assets and investment(s) are objectively lacking and we really don’t see many reasons as to why this company can’t afford to continue shelling out its current quarterly dividend.
Nevertheless, while there has been some marked revenue growth, it has since tapered off over the last couple of years and therefore, we feel it makes the most sense to offer Tempur’s stock a “sell” rating when considering its current valuation, as we simply don’t see any reasons to overpay for an ownership in the company’s stock (NYSE: TPX) at the moment.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
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