By Brian Bolan
Select Comfort (NASDAQ:SCSS) is giving investors nightmares as it dreams up two negative earnings surprises. The stock is a Zacks Rank #5 (Strong Sell) and is the Bear of the Day.
The two most recent earnings report saw the company post negative earnings surprises. The December 2012 quarters saw a big $0.10 miss which translates into a 31% negative earnings surprise. The next quarter saw a miss of $0.02 or 4.55%.
Following the earnings releases, the stock felt like someone wet the bed. A 14.8% decline followed the December 2012 report that occurred on 1/24. The stock was off less than a full percent following the March 2013 report, so just an uncomfortable night’s sleep and not quite the night terror the stock saw last quarter.
Select Comfort makes and sells adjustable-firmness mattresses and other sleep-related products in the United States and Canada. The company offers its products under the Sleep Number brand name. As of December 29, 2012, it operated 410 stores. The company was founded in 1987 and is headquartered in Minneapolis, Minnesota.
SCSS Third Longest Streak As #5
Only two other stocks have been a Zacks Rank #5 (Strong Sell) for a longer period of time. Since January 29, the stock has seen a deterioration of earnings estimates.
Estimates for 2013 were calling for $1.89 in December 2012, but slipped to $1.73 in January 2013. They fell again in March to $1.58 and are currently at $1.36.
2014 Estimates were not ignored either as the fell from $2.31 to the current level of $1.70. Both decreases are a significant reason why the stock has not moved from a Zacks Rank #5 (Strong Sell) in some time. Valuation
The valuation is a mixed picture for SCSS. The trailing PE of 15x is showing a mild discount to the 22.5x industry average. The forward PE is a different story. The stock is trading at about 16x forward estimates while the industry is at 14x, so SCSS is showing a premium for expected earnings even when they have missed the last two quarters. The Price to book is 5.7x, a rich multiple compared to the 2.3x industry average and price to sales also shows a premium to the industry average.
The last two years have seen this stock go up and down and up and down again. The stock is bouncing off 52 week lows of late, but investors should sleep on a decision of whether to get into bed with this stock.