Sleep Number (SNBR): 2019 Top Picks' Mid-Year Update

07/19/2019 5:00 am EST


Crista Huff

Editor, Cabot Undervalued Stocks Advisor

Crista Huff, editor of Cabot Undervalued Stocks Advisor, chose Sleep Number (SNBR) as her favorite investment for 2019. The stock rose 27% in the first half of the year. Here's her latest update on the private equity firm and alternative investing firm.

Sleep Number (SNBR) is the leader in sleep innovation, and a designer, manufacturer, marketer, retailer and servicer of a line of Sleep Number beds, bases and bedding accessories.

Revenue has increased consistently from $960 million in 2013 to an expectation of $1.6 billion in 2019. Wall Street projects EPS to increase 27.6% and 15.5% in 2019 and 2020. The 2019 P/E is 16.7. In light of the slowing earnings growth rate, I now consider the stock to be fully valued.

SNBR rose 54% year-to-date through mid-April, then plummeted when first quarter results were announced, giving back almost all of this year’s gains by late May.

There was nothing wrong with first quarter numbers, though. Earnings per share came in much higher than the consensus estimate, while revenue came in just a fraction lower than the estimate.

Management reiterated their attractive full-year earnings outlook, causing analysts to slightly increase earnings projections. The stock fell due to a classic case of “sell on the news”: this micro-cap stock was pushed higher and higher by traders, who then dumped their shares in order to lock in big profits.

SNBR had a nice recovery in June. At $41 per share, the stock is up 29% year-to-date, and there’s another 19% upside if the stock retraces its April high of $49. Traders should use stop-loss orders and consider exiting the stock near $49.

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