Wedbush Finds Mattress Maker Purple Innovation's Valuation, Rapid Growth A Good Fit

Purple Innovation Inc PRPL's reverse merger with a special-purpose acquisition company makes it the first U.S.-listed bed-in-a-box company, according to Wedbush.

The Analyst

Analyst Seth Basham initiated coverage of Purple Innovation with an Outperform rating and 12-month price target of $11.

The Thesis

Purple Innovation is likely to see rapid growth fueled by new capacity, additional marketing, new products and new retail channels, Basham said in a Tuesday note. The company's efforts to introduce new, higher ASP products and sell them through Mattress Firm should drive revenue growth, the analyst said.

Purple Innovation's 2017 sales and marketing efficiency ratios were pressured by capacity constraints and negative mattress reviews, according to Wedbush.

The company was free of capacity constraints as of March and is planning the addition of a fifth mattress machine later this year, Basham said.

With shares trading at 12 times the EV/2018 sales estimate, Purple Innovation is attractively valued relative to high-growth peers, the analyst said. 

"Moreover, PRPL is growing its revenue by nearly triple digits — much faster than nearly every peer in our comp group."

Wedbush has valued Purple Innovation's shares at a reasonable discount to high-growth peers due to relatively higher risks and limited stock trading volume, Basham said. 

The Price Action

Purple Innovation shares have declined 16 percent over the past year. The stock was down 0.84 percent at the time of publication Wednesday. 

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Photo courtesy of Purple Innovation.