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PRPL- The Sleeper Stock

|Includes: Purple Innovation, Inc. (PRPL)

Summary

PRPL Mattress is just penetrating the market.

PRPL Mattress has several potential routes for growth.

Each Route sets the stage for significant appreciation in stock price with very little downside.

I've recently taken a position in PRPL because I believe that every scenario in the short term shows upside potential.

The latest earning calls was disappointing in some regards because it painted a picture that the PRPL mattress had lost steam due to mattress cost and lower conversion rates. Although this isn't a great story to tell, it does tell you that PRPL management is more concerned about driving profitability and sustaining self funded growth.

CEO Terry Pearce indicated that the full year forecast for PRPL in 2018 was going to be in the neighborhood of 300M, with future annual growth rates hovering in the 30-40% range. I personally believe that these numbers are conservative and don't paint the upside scenarios that could be related to wholesale distribution improvement, overseas markets, etc.

Let's look at a few scenarios.

Scenario 1- PRPL grows the total business by 30-40% and introduces no new products. This Scenario would put the 2019 revenue in the 420M range. 

Scenario 2- PRPL rolls out to 50% of mattress firms and is able to sell 3 mattresses per week, per store and maintains 200M in direct to consumer sales. This scenario would equate to approximately 273,000 mattress sales with an average estimated selling price approaching $1250. Revenue for this scenario would put 2019 PRPL revenue in the ~540M range.

Scenario 3- PRPL rolls out to 100% of Mattress firms in 2019 and sells 2 Mattresses per week, per store. With an average wholesale price of $1250, Mattress firm would account for ~455M in revenue. The total revenue for the company would be in the 600-700M range with the assumption of very little improvement in the direct to consumer business.

Scenario 4- PRPL Rolls out to 100% of Mattress firms and grows their direct to consumer business by 40%.  This scenario would have a total revenue of 875M. 455M would be contributed by Mattress firm and 420 would be contributed by the direct to consumer business.

Assuming that PRPl can achieve 10% profit Margin, and with a 17 P/E multiplier.

Scenario 1 would value the company @ $714M

Scenario 2 would value the company @ $918M

Scenario 3 would value the company @ $1.19B

Scenario 4 would value the company @ $1.48B

All of my estimated use conservative growth numbers and conservative margins. We could see PRPL as a mid CAP stock within the next 3-5 years, with a market cap approaching $3B.

This article is my opinion. 

Disclosure: I am/we are long PRPL.