Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Another Select Comfort Corp. (SCSS) Sell-Off, Another Buy Opportunity

Ever-volatile premium mattress company Select Comfort Corp. (NASDAQ:SCSS) delivered an earnings report this week that failed to impress the Street in a big way. The company missed its estimates on either end, suggesting that things were getting soft (punny, I know) in the mattress world. As a result, the stock took a near 10% hit in Wednesday’s after-hours trading, and through into Thursday. Management, however, is sticking to its full-year guidance, and did not find the missed estimates to be as terrible an issue. Does the stock drop create an opportunity for the company, or is the market a prophet of more difficulty to come?

A difficult pick
Keeping a close eye on Select Comfort Corp. (NASDAQ:SCSS) for a few years has illuminated a few things about the company — sales seem to swing from great to poor, with little in between; and the stock is tremendously sensitive because of it. The five-year price chart shows near 2,000% gains — not bad—but since its peak roughly 16 months ago, Select Comfort has been a series of rapid gains and losses. While frustrating for an existing or prospective shareholder, it does suggest that the stock is frequently mis-priced. The question now is, at under $25 per share, has the market undervalued the long-term growth prospects of the company?

Select Comfort CorpSelect Comfort Corp. (NASDAQ:SCSS) is growing both organically and via acquisition. The company is opening many new stores over the course of 2013, and it recently closed its $15.5 million acquisition of competitor Comfortaire. By buying up the smaller players that mimic its designs and technologies, Select Comfort is better suited for taking on its direct peers — essentially, Tempur-Pedic International Inc. (NYSE:TPX).

Still, the company missed analyst estimates on both the top and bottom lines, coming in roughly $3 million shy on revenue ($207m vs. $210m), and $0.06 short on EPS ($0.18 vs. $0.24). On a year-over-year basis, sales increased while margins dropped, contributing to the larger loss on the bottom line.

The call
The average estimate for full year revenue is $1.36, with $1.66 in the following year — in line with management’s current expectations. This implies a 2013 P/E of around 18x, with a 2014 ratio of under 15.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.