Purple Innovation (PRPL) stock now finds itself down around 50% from its February 2021 peak amid the perfect storm of headwinds. The $1.4 billion comfort technology company is in a very niche industry.
The company creates a wide range of cushioning products, using its famous and innovative purple polymer grid. This is a very intriguing cushioning system that aims to ease pressure points while maintaining the right level of support.
Undoubtedly, Purple has taken a much different approach than most other companies in the mattress space. While the product may not hit the right spot for every consumer, Purple’s product has gained more than its fair share of fans. The company wasn’t rated number one in customer satisfaction two straight years from J.D. Power and associates for nothing!
With a front-row seat to an old industry that’s ripe for disruption, Purple has a unique opportunity to leverage next-generation comfort technologies to steal market share away from incumbent players that are so reluctant to try something new. As such, I am incredibly bullish on PRPL stock, after a 50% plunge.
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What’s Behind Purple’s Uncomfortable Decline?
Purple Innovation missed on earnings for three of the last four quarters. Missing on the bottom line is starting to become a habit.
Despite the weakness, most analysts remain bullish on the stock.
According to TipRanks’ consensus analyst rating, PRPL stock comes in as a Strong Buy. Out of 6 analyst ratings, there are 5 Buy recommendations and 1 Hold recommendation.
As for price targets, the average Purple Innovation price target is $34.33, implying an upside of 71.65%. Analyst price targets range from a low of $22.00 per share to a high of $45.00 per share.
Purple Innovation? Or Novelty?
The company’s Purple line of mattresses leverages its signature Purple gel grid system, but it doesn’t stop there. The company also creates seat cushions, bed pillows, and even dog beds, all eye-catching products that are attractive enough to garner attention at the local Bed Bath and Beyond (BBBY).
Despite the promising technology, the company’s shippable mattress remains the digitally-focused retailer’s biggest needle mover. Nonetheless, after an excruciating past year, shareholders of PRPL have likely gotten some terrible sleep, especially for those who rode the name all the way down to $20 and change, where PRPL stock currently sits today.
While there is something incredibly novel about Purple’s innovative grid cushioning system, I’d say there’s a lot more than just novelty here. The company claims that its comfort technologies are backed by over 25 years of investment and innovation. Given the high ratings by customers and the incredibly “different” type of cushioning that Purple technology offers, it’s arguable that Purple is well on its way to reinventing the entire industry.
Of course, few people have heard of Purple. It’s a relatively small publicly-traded company, and it has a larger R&D budget than its less-innovative peers. Still, if the company can ramp up its marketing, the product could reach a greater target audience and win over more fans, not just with mattresses sold through its e-commerce platform, but with a broader range of products.
Try-Before-You-Buy could be Key to Growth
Undoubtedly, Purple is a cushioning system that consumers need to try before they buy into the hype. That’s why brick-and-mortar retailers may be vital to the company’s long-term success.
For now, Purple is primarily an e-commerce play. Yet this could change with time, and that change could be for the better. In any case, PRPL stock is dirt-cheap at 1.9 times sales and 8.4 times book. The company has all the tools to disrupt the comfort industry. If management can execute, the upside in the name could be sizeable.
Disclosure: Joey Frenette doesn’t own shares of any mentioned companies at the time of publication.
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