We noticed a bull thesis on Purple Innovations, Inc. (PRPL) on ValueInvestorsClub by pathbska. VIC is our preferred site because the ideas there are generally posted by aspiring analysts who try to optimize their research. We find the ideas presented on the site well thought out and worthy of a read. Click here for the full article. Below we summarized the PRPL bull thesis. Purple Innovations, Inc. (PRPL) shares were trading above $35 when this thesis was published, vs. today’s price of $27.
PRPL is a Utah-based American comfort technology company. The digitally-native vertical brand specializes in the sale of mattresses, pillows, back cushions, seat cushions, and platform bases. The company uses proprietary and patented innovative comfort technologies for design and manufacturing processes. PRPL markets and sells its products through direct-to-customer online channels, traditional retail partners, third-party online retailers and its own retail showroom.
COVID19 created a huge acceleration of demand through the company’s DTC channel, which threatened an almost complete shut-down of its retail and wholesale channel for few months. PRPL has turned the challenge into an opportunity.
PRPL responded to the massive demand by acquiring 2 MaxMachines in 2020 and also announced plans for an additional manufacturing facility in the Georgia, which will eventually have 6 more MaxMachines. A fully functional set of these machines is expected to ramp up PRPL’s mattress manufacturing from 220,000 per year in 2019 to around 600,000 per year in 2022. MaxMachine makes the equipment that manufactures the mattresses.
The increased output is expected to result in additional output of 50,000 mattresses per machine annually. With about $3-5 million of capex required for each of the machines, yielding $90 million of revenue per machine implies an approximately 10x cash-on-cash return (45% gross margin). The analyst believes this ramped up capacity puts PRPL on the path to generate a $1 billion revenue within the next 3 years. The recently announced addition of new retail partners with a total of over 400 stores in North America is expected to give PRPL the push to achieve this milestone.
PRPL has also been successfully reducing the percentage of returned orders, which can jack up the costs of removal, shipping etc. Additionally, owing to its location, new plant in Georgia should further reduce the distance, time, and operating cost to ship to PRPL’s East Coast customers.
Armed with operating leverage on fixed costs, a huge demand for its products, significantly enhanced supply chain, and a recently announced share restructuring, PRPL looks well-positioned to experience sharp earnings growth in 2022 and beyond.
The analyst thinks the Street seems to be underestimating these developments at PRPL, and expects the stock to double over the next three years.
See also 10 Best Furniture Companies In The World.
