3 Reasons Investors Should Be Wary Of Casper Sleep

It’s had uncomfortable beginnings since its IPO in February, but why should investors be wary of the mattress-in-a-box start-up Casper Sleep?

Do investors dream of Casper Sleep? Probably not. 

Unlike Ridley Scott’s 1982 classic ‘Blade Runner’, Casper Sleep (NYSE: CSPR) will probably not experience such wide-reaching success. A company that has taken the WeWork route of waxing lyrical and touted itself as a pioneer in the ‘sleep economy’, Casper Sleep was a favorite of New York Millennials. With the convenience of a mattress being delivered directly to their doors in a box no less, it is a simple solution for fast-paced living. 

Predominantly an e-commerce business, Casper Sleep had been expanding into ‘brick-and-mortar’ stores across the U.S. and Canada before its IPO in February. Since then however, things do not look so comfortable for the mattress company, and I can only imagine that Casper Sleeps is hoping for a bit more investor interest in the next few months.Here are three reasons why investors should continue to remain wary of this sleepy stock. 

1. Too much competition

The ‘Sleep Economy’ is a much-saturated market and Casper Sleep isn’t even the best out of the lot; Amazon (NASDAQ: AMZN) and Walmart (NYSE: WMT) have their own range of mattresses. Casper Sleep only sells three types of memory foam mattresses amongst other products such as bedding and a portable night light, whilst competitors sell ranges on mattresses with differing firmness or material. Sleep Number (NASDAQ: SNBR) has three mattress options in its performance series alone. 

There is no escaping the fact that the competition on the market is high and other companies often perform better than Casper Sleep. Rival Purple Innovation (NASDAQ: PRPL) sells the same things, and it is profitable whilst Casper saw net losses of $95 million in 2019, up from $85 million the 12 month period before.

This market competition spells problems for Casper in the future, particularly as the stock is currently experiencing slow (if steady) growth since its mid-March low of $3 to where it currently sits at around $8.

2. The Hype Train

Before its IPO, Casper Sleep managed to acquire several high profile names to its list of investors. Celebrity investors and endorsements such as Leonardo DiCaprio, Ashton Kutcher, and 50 Cent helped raise $240 million in equity funding. Even CNBC added the company to its ‘Disruptor 50’ list for 2019, showing a strong belief in its prospects for this year. 

Analysts such as at Goldman Sachs (NYSE: GS) still believe that the company has a profitable future ahead of it and that the share price dip is a buy potential. This would make sense for a start-up that lived up to the pre-IPO private funding hype, but the slashing of the share price from $17 down to $12 for its public offering in February suggests that Casper Sleep does not have investor interest, which will continue to harm its growth potential in the future.

In a post-WeWork era, the last few months have been proof that Wall Street no longer likes unprofitable start-ups with delusions of grandeur. 

3. Bad Timing

Even if Casper Sleep were to become profitable within the next 2 years, it has the economic aftermath of COVID-19 to deal with, which includes a looming recession. As investors are well aware, there is nothing like a recession to stop people from frivolous spending. Items such as a $1,000 new mattress might not be included on a list of essential items to purchase when saving money.

As of April 21, Casper Sleep announced that it was laying off 21% of its corporate workforce. This comes as the company decided to begin closing down operations in Europe over the course of 2020 in order to focus on its home U.S. market. Although this decision could be corona-induced, the CFO and acting COO, Gregory Macfarlane will step down from the company on May 15, just in time for its earnings call. 

This company had the bad timing of its IPO weeks before the pandemic chaos hit. With its poor numbers from the past few years as well as the most recent news of management problems, I am led to feel extremely wary about even thinking of investing in this stock.

On My 12, Casper Sleep reported a Q1 loss of $1.23 per share, but beat on revenue with an increase of 26.4% to $113 million. Net loss was $34.5 million, and as of March 31, 2020, the company had cash and cash equivalents of $116.1 million compared to $67.6 million as of December 31, 2019.

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in stocks mentioned above. Read our full disclosure policy here.