(By Rich Bieglmeier) Tempur Pedic International Inc.
) is the third stock from iStock's money flow list. The memory-foam mattress maker's stock has been cold in more ways than one.
TPX has been rough on investors, and some say your love life
Last week, TPX experienced $48 million dollars in net buying, or nearly 3% of its market cap. Perhaps the interest can be attributed to short covering as the stock fell out of bed following management cuts to revenue and profit targets.
On June 6th, the company announced that it expects to earn $2.70 per share, down from $3.80 to $3.95, and sales of about $1.43 billion, lower than its previous estimate of $1.6 billion to $1.65 billion.
Following June's unwelcome news, shares dropped from $42 and changed to $22 and change, but the nightmare dates back to April 18th when the stock closed at of $87.26. Today, TPX is trading a touch above $24.
The question now is whether it's time to buy or go to sleep on the stock.
Management has made their choice. Two days after the crash, Tempur Pedic Chairman Andrews McLane purchased $2.8 million of TPX stock. On the same day, the company announced that it was buying shares as a part of its $250 million share repurchase plan, of which about $200 million remains.
It is one thing to spend the company's money, but a whole another thing to put your own money on the line. Unless Mr. McLane is sleepwalking before TPX falls down the stairs again, both moves are public shows of strength and confidence.
Based on the company's current fundamentals, iStock believes the Chairman's and company's money might be well spent. Analysts believe TPX will grow its 2013 top and bottom lines by 7.6% and 12.4%, respectively. Meanwhile, shares are valued at just 7.93% of next year's profits. The discount could make the $2.8 million insider purchase worth more than $4 million (at $36 per share) this time next year.
Another valuation benefit coming from TPX's crash is that you can own shares for $1.03 per share for every dollar the company does in sales per share. Just a few weeks ago, the street believed Tempur Pedic was worth more than 4 times sales.
McLane's company still sports much higher margins than the industry average, and management effectiveness remains high based on superior return on assets and equity percentages.
From a chart perspective, iStock would like to see the stock price test its two-time closing low of $22.39 and pivot higher, or close above the gap down open of $26.71, before buying the stock.
While valuations and insider buying give us confidence that Tempur Pedic International Inc. (TPX) is likely to be higher in six to 12 months, we'd rather have the additional comfort of buying at the right time.