Caspar Sleep 👻 🛌

Have you ever put your head down to rest and suddenly remembered you run an unprofitable business which is aggressively burning cash to claim market share in a highly competitive extremely high churn industry and now you are faced with a global pandemic which has ruined all your future plans and requires drastic action? No, just the e-commerce box mattress companies then?

That would be quite the nightmare.

Caspar has made the tough decision to stop their European business and focus on the Americas solely. While they slept on the decision for a while, they are cutting employee jobs both locally and from their European operations as well.

…laid off 78 employees from the corporate team, which makes up 21% of its total corporate workforce. The company is also winding down its European operations and its 31-person headquarters in Germany…

This follows news on March 30 that the brand furloughed all 500 of its retail employees at its 62 brick-and-mortar stores

The box mattress industry is highly competitive. In the UK alone you might have heard of Emma, Eve, Leesa, Otty, Slientnight, and Simba. Plus more which would result in getting a lot of targeted ads from companies thinking I am fitting out a hospital with the amount of box mattresses I’m looking at.

Caspar are now focusing on the American region, which has it’s own set of competitors. Firms like AllsWell, Zinus, Tuft & Needle, Helix, Bedgear, Saatva, Tulo, Purple, and Layla. So don’t expect Caspar to be napping when it comes to their advertising, which means more cash into the growth fire.

Caspar has been struggling, and the pandemic isn’t keeping them well rested.

Low trading volumes and ongoing struggles is causing a lot of restless nights for investors. The business model of convincing people to buy mattresses more frequently, and encourage brand loyalty, is a tough bed of nails.

But what does this all mean for the long term investors? The news about the focusing has been met positively by investors, cutting loss making markets and doubling down on a singular focus is a tough but potentially rewarding tactic. Let’s see what the fundamentals have to say.

The quality is medium to poor, there isn’t a lot to shout about as this is a high growth company. The profitability isn’t horrific compared to the wider market due to the high margins and cut backs over the last few months. Focusing on the profitability isn’t a new change of heart. The financial strength is middling, nothing interesting to comment on. Finally the capital allocation is very poor, which you expect with a high growth firm which is reinvesting money back into it’s self rather than paying the gains to investors.

Value is an interesting talking point, only because Caspar is so expensive. Balance sheet against share price, cash flow against share price, and even the income against share price are all very expensive or average. Overall this is a very expensive stock to pickup right now.

Counter to this, and hopefully explaining the mile high share price, is the extremely optimistic future growth. The momentum is very high. Future revenues are expected to skyrocket, the earnings will be printing money, and general analyst sentiment is also strong.

In fact, 56% of analysts say this is a buy with 44% saying it’s a hold. Seems analysts are saying get on the rocket ship to dreams now or wait till it gets a bit cheaper.

There are challenging nights ahead, if they pull the covers off this refocusing and profitability plan there will hot milk all round for everyone to enjoy the blissful sleep ahead. However, if this wonderful dream is already priced in, is there only short term risk to be had?

What do you think? Is this an emerging dream or a bedbug ridden nightmare?

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