Purple Innovation, Inc.

PRPL Details

Business Update: Purple Innovation, Inc. (NASDAQ: PRPL) designs and manufactures premium, branded, and comfort products that include mattresses, pillows, seat and back cushions, etc., to name a few. The market capitalization of the company as on 02 June 2021 stood at ~$1.89 billion. As per a recent update, the company has announced its pricing of an underwritten secondary public offering of 7,308,792 shares of its Class A common stock at a price of $30 per share.

Q1FY21 Results Update: The company has posted an increase of ~52% in revenues to $186.4 million during the quarter. There has been improvement in the direct to consumer revenue by 54.8%, and wholesale revenue increased by 47.6% compared to the previous corresponding quarter.  The adjusted EBITDA increased by 115.1% to $22.8 million, compared to $10.6 million in the previous corresponding period. The net income stood at $20.9 million. It exited the quarter with a cash position of $103.8 million as of 31 March 2021.

Increasing Trend in Revenue & Gross Profit (Source: Analysis by Kalkine Group)

Key Risks: The company depends on the availability of raw material at favourable prices for the smooth functioning of its business. Any challenge to acquire the same might have an impact on the company's production limits. 

Outlook: The company has upgraded its FY21 outlook on the back of impressive results in Q1FY21. It now expects full-year revenue to be in the range of $860 million and $900 million (as compared to the prior view of $840 million to $880 million), and adjusted EBITDA to be between $95 million and $105 million (as compared to the prior view of $90 million to $100 million). In Q2, it expects the revenue to between $200 million to $210 million and adjusted EBITDA to be in the range of $21 million and $25 million.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: 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.

Stock Recommendation: The company has recently announced the expansion of its sleep innovation research, and Dr. Michael Breus will lead the research as PRPL’s chief sleep advisor. The stock of PRPL is trading close to its average 52-weeks’ levels of $41.08-$14.36. The stock of PRPL gave a positive return of ~53.19% in the past nine months and a negative return of ~16.11% in the past one month.  We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium to its peer average EV/Sales (NTM trading multiple), considering the decent financial performance and upgrades in guidance level for FY21. For this purpose, we have taken peers such as Tempur Sealy International Inc (NYSE: TPX), Lowe's Companies Inc (NYSE: LOW), Ethan Allen Interiors Inc (NYSE: ETH), to name a few. Considering expected upside in valuation and current trading levels, robust financial performance in Q1FY21, decent cash balance, upgrade in guidance level and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $28.31, up by ~0.71% as on June 02, 2021.

PRPL Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV 

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided. 

Technical Indicators Defined: - 

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.