• CHART- know how to read charts. I firmly believe I can improve the price of buying or selling from an understanding of chart action.

Stock is very oversold; +1

 

  • ANALYSTS- read analyst reports but come to your own conclusions.

4 strong buy, 10 hold (according to CNBC); -1

 

  • INSIDERS- if the people that know the company the best are not buying it, why should you?

Chairman purchased 112,000 shares at $25.02 on 6/8/12, director purchased 4,500 shares at $23.60 on 6/15/12; +1

 

  • MANAGEMENT DISCUSSION 10Q AND 10K- this is the only truthful thing you will read about a company. It’s composed by management, the auditors, and the firm’s lawyers.  If all three of them can agree on the verbiage, it’s passed a big hurdle.  Read it carefully.  Pay particular attention to the Risks, Litigation, and Related Transaction sections.  These are the things you will wish you had taken the time to read if something goes bad with your investment.

Financials look consistent, nothing out of the ordinary; 0

 

  • RELATIVE PERFORMANCE- If the stock has a superior relative performance to the market in the short term

Underperformed since sharp declines at the end of April; -1

 

  • SECTOR OUTLOOK- buying a good stock in a bad sector can be a humbling experience

S&P remains neutral on the premium mattress industry; 0

 

  • CASH FLOW- cash flow is more accurate than earnings. Earnings can be more easily manipulated.

Strong operating cash flow growth of about 36% on average over the last 3 years; +1 

 

  • PEG RATIO- it’s good to find a company growing faster than it’s multiple.

0.65 (according to Yahoo! Finance); +1

 

  • VALUATION- contrary to popular opinion, it does matter what you pay for a company.  Check its discounted cash flow value.  Buy it for less than what it’s worth, a 1, less a -1, about the same 0.

After adjusting margins and growth rate (-1%) to reflect recent deterioration in sales, the stock still contains an upside of almost 64%.  Analysts’ estimates (S&P) earnings estimates of 2.70 per share will put the P/E ratio at 8.03 for current price levels.  The stock looks cheap; +1

 

  • CATALYST- what’s going to change the status quo?

Tempur-Pedic is offering a fairly large line of offerings at multiple price points.  They have made their lower-end products more competitive from a price standpoint and have a large amount of equity associated with their brand.  Much like Kleenex, Band-Aids and Xerox; Tempur-Pedic is almost synonymous with memory foam mattresses.  They also offer a variety of different memory foam pillows geared toward ergonomics as well as bed linens and even slippers.  Many competitors have started to offer similar technology at very competitive prices.  This could be detrimental to TPX if they cannot begin to recapture sales; 0

 

After visiting a mattress warehouse, it is clear to see that Tempur-Pedic is the featured brand.  This was confirmed by the salesman who was a huge proponent of TPX and confirmed that they are his best-sellers.  They are more expensive than most memory foam competitors (from a comparable levels of quality).  Tempur-Pedic is trying to combat this by offering a more affordable line, but have minimized the amount of features included.  Most of the competitors’ top of the line products were about the same price as the new, more affordable Tempur-Pedic. 

Tempur-Pedic mattresses are price controlled and are hard to get a deal on, whereas many of their competitors’ products can be sold at a bargain (was made an offer for a premium Beautyrest Comforpedic mattress at about $1000 off of the sticker price.  This would be unobtainable with a Tempur-Pedic mattress).  The salesman did indicate that Tempur-Pedic was having its first sale that he has ever seen (about $200 off of most mattresses).

The two main competitors that could pose a large threat to TPX are Serta and Beautyrest.  Their mattresses are very comparable in feel to Tempur-Pedic and are sold at lower price points.  Both competitors are also attempting to advance memory foam technology to make it more attractive than Tempur-Pedic’s standard Tempur material.  While the Tempur material is generally accepted as the superior memory foam material, it does not address the most common complaint with memory foam of overheating.  Serta’s iComfort line tries to address this by combining memory foam and gel.  The jury is out on whether or not the technology works, but the sales of the iComfort have been picking up steam according to the salesman.  The Comforpedic by Beautyrest uses even more technology.  It features stiffer edges to the mattress to avoid roll-offs, multiple different layers to provide cool comfort, and a base layer that is said to be “pre-broken-in”.  These selling points are all the more reason for the consumer to choose the competitor over the premium Tempur-Pedic.

Tempur-Pedic is definitely the Cadillac of memory foam beds.  They quality of their material can be witnessed in their display where a consumer can test their material compared to competitors with their own hands (“the Tempur Challenge”).  The mattresses do feel amazing when you lie down in them as well.  A mattress is a big purchase and many will pop for the finest product to ensure that they are getting a good night of sleep.  This is a positive indicator for TPX.  At the same time, competitors can offer a mattress with an almost identical feel for much less.  In order to stay competitive, TPX will most likely have to lower the prices of its high-end products.  They should also look into advancing their technology to create more selling points like their competitors have.