Sleep Country Canada (CA:ZZZ) is one of many Canadian stocks worth heading north of the border for. Many pundits have questioned the valuation of many S&P 500 names, making a case for scooping up value in Canada that much sweeter.
Despite the less favorable CAD/USD trade-off, with the Canadian Dollar picking up strength on the back of soaring oil prices, ZZZ stock is a name that could continue to produce good results, even if currency fluctuations moves are less favorable from here.
Undoubtedly, stagflation headlines and earnings slowdown worries have led many to take profits off their fastest-moving cyclical and discretionary stocks.
The roaring ’20s environment that we heard about earlier this year has been replaced by more dire headlines.
Whether we’re talking about rate hikes, stagflation, a drastic valuation reset, or a double-dip recession, some investors are giving up on their most at-risk discretionary stocks. This is perhaps a premature move, given much more upside could be on the table as the economy continues rolling forward after a few speed bumps.
With a valuation that’s too good to pass up and an economic moat that’s often underestimated by investors, I am bullish on Sleep Country stock. (See Analysts’ Top Stocks on TipRanks)
Sleep Country Continues to Innovate
Sleep Country stock has been on an incredible run, now up around 36% year to date when including dividends. More recently, though, shares of Canada’s top mattress retailer have stalled out around the $35 level of resistance amid tougher year-over-year comparisons and a broader weakening of the discretionary trade.
Despite recent share price weakness, Sleep Country has been on quite the win streak as far as its quarterly results are concerned, beating the bottom-line per-share earnings consensus handsomely for four consecutive quarters.
While Sleep Country remains very much a brick-and-mortar play, it’s hard to ignore the moves that the firm has made the bolster its digital business. The e-commerce business really pulled through in 2020. The company’s acquisition of Canadian mattress-in-a-box retailer Endy also helped the firm adapt to the mattress industry that’s seen quite a bit of innovation over the last several years.
Whether we’re talking about e-commerce mattress pure plays that ship rolled-up mattresses straight to one’s door or cutting-edge cushioning technologies like those developed by Purple (PRPL), it’s clear that old-fashioned brick-and-mortar incumbents in the space will need to step up their game by embracing technology.
Otherwise, they could run the risk of seeing their market shares become less dominant over time.
Sleep Country’s Omnichannel Advantage
Despite the appeal and convenience of e-commerce mattress retailers such as Purple or Casper Sleep (CSPR), the business of sleep retail remains one that’s likely skewed ever so slightly in favor of brick-and-mortar.
Friendly return policies are nice and all, but at the end of the day, finding the perfect “Goldilocks” mattress is far easier with the ability to test a wide range of demo models in a physical setting in a quick and efficient manner.
In any case, one who values convenience or minimizing the risk of contracting COVID-19 at a physical store over finding the perfect mattress may be more inclined to settle for whatever ships to their door.
Sleep Country knows it could lose some younger, tech-savvier consumers if it stuck solely with its brick-and-mortar strengths.
Over the years, Sleep Country has vastly improved its digital business to defend against e-commerce rivals that have moved on from selling just mattresses to a broader range of sleep products. Quite a rapid and effective response from Canada’s top sleep retailer.
Furthermore, it’s not just the ability to get convenient delivery of mattresses, pillows, or blankets that’s key to success in the niche sleep industry. Having the latest innovative category of products also helps drive sales across the omnichannel.
Recently, Sleep Country closed its acquisition of a 52% majority stake in weighted-blanket company Hush Blankets in a deal worth CA$25 million.
Indeed, cooling and weighted blankets have been hot sellers across digital sales platforms of late. The Hush Blankets brand is yet another incredible addition to Sleep Country’s already solid roster of sleep products that continue to find a sweet spot with consumers.
Wall Street’s Take
Turning to Wall Street, Sleep Country has a Moderate Buy consensus rating, based on three Buys and two Holds assigned in the past three months. The average Sleep Country price target of $40.00 implies 13.5% upside potential.
The Bottom Line on Sleep Country Canada
As a company that’s managed to stay at the very top of Canada’s mattress and sleep market for decades, investors shouldn’t doubt Sleep Country’s ability to retain its dominance, even as sleep innovation continues to take off.
With a knack for beating on earnings and using acquisitions to become more innovative, Sleep Country is a sleeper pick that can help cautious investors sleep very comfortably at night.
Trading at a modest 13.9 times forward earnings multiple, ZZZ stock is one of many Canadian stocks that ought to cater to the American value crowd.
Disclosure: Joey Frenette doesn’t own shares of any mentioned companies at the time of publication.
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