Purple Innovation, Inc.

PRPL Details

Purple Innovation, Inc. (NASDAQ: PRPL) creates and manufactures a wide range of creative, branded, and premium comfort goods, such as mattresses, pillows, cushions, sheets, frames, and other bedding items. It advertises and distributes its products via direct-to-consumer (DTC) online channels, retail brick-and-mortar wholesale partners, retail showrooms, and third-party online retailers. As of November 09, 2021, PRPL's market capitalization stood at USD 1.28 billion.

Latest News:

• New Contract Signing: On November 08, 2021, the company signed a Master Retailer Agreement with Mattress Firm, Inc., a leading US-based mattress specialty retailer, to expand PRPL's product sales in Mattress Firm's retail stores and remove the previous clause restricting opportunities for PRPL to commercialize its products outside of Mattress Firm.

Q3FY21 Results:

• Decline in Revenue: The company reported an 8.73% decrease in net revenue to USD 170.78 million in Q3FY21 (ended September 30, 2021) compared to USD 187.11 million in Q3FY20, due to the company's reduced ability to manufacture and deliver products to DTC and wholesale clients resulting from the production issues faced by it in Q2 and Q3FY21.
• Increase in Net Income: Its Q3FY21 net income was USD 2.13 million vs. a net loss of USD 87.16 million reported in Q3FY20, owing to a USD 5.36 million non-cash gain relating to the change in fair value of its warrant liabilities.
• Strong Balance Sheet: PRPL exited the quarter with a cash balance of USD 83.62 million and a total debt of USD 41.91 million.

Key Risks:

• Customer Concentration: In FY20, one client accounted for 15% of PRPL's net revenue and 79% of its account receivables. As a result, the loss of such vital customers could harm the company's financials.
• Stiff Competition: PRPL works in a highly competitive comfort industry, with significantly larger companies with excellent financial and operational capabilities operating in the market. As a result, any pricing pressure or improved product development by these competitors can impact PRPL's market share and affect its results of operations.

Outlook:

• Revenue & EBITDA Estimates: In its Q3FY21 release, PRPL stated that it expects its FY21 net revenue to range from USD 720 – 740 million, representing a YoY growth of 11% – 14%. The estimated adjusted EBITDA range is USD 15 – 25 million.
• CAPEX & Liquidity Guidance: The company anticipates incurring USD 55 – 60 million in capital expenditures in FY21 and ending the year with USD 85 – 95 million in liquidity (including amounts available under its lines of credit).

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

PRPL Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

PRPL's stock price has fallen 24.32% in the past twelve months and is currently close to the lower end of its 52-week range of USD 17.95 to USD 41.08. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 36.96. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 18.09.

Considering the consistent decline in the stock price, disappointing financials, and degraded business outlook, we recommend a "Sell" rating on the stock at the closing price of USD 19.20, up 0.89% as of November 09, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and industry information have been taken from REFINITIV.