Running Even With Apple YTD, Tempur-Pedic Shares Start to Look Pricey

Investors in mattress maker Tempur-Pedic International (TPX) undoubtedly have been sleeping like babies. The company has posted steady growth in profits, and the stock has been enjoying a meteoric run over the past couple of years.

Tempur-Pedic International Stock Chart

Tempur-Pedic International Stock Chart by YCharts

Tempur-Pedic has even nearly matched Apple's (AAPL) 50% rise year-to-date.

TPX Chart

TPX data by YCharts

But somebody should rouse investors from their peaceful sleep. The stock has become rather expensive, getting a "poor" Pro Value Score from YCharts Pro, and is about 45% above its historical valuation.

Tempur-Pedic has a higher PE ratio than Apple.

TPX PE Ratio Chart

TPX PE Ratio data by YCharts

Even on a forward basis, Tempur-Pedic's PE for 2012 is 21.3 compared to 14 for Apple.

The company's earnings-per-share growth has been strong, but it appears to be slowing. After gaining 47% in 2011, Tempur-Pedic guided the market to expect a roughly 24% gain this year, excluding any benefits to be gained via the company's $250 million share buyback program for 2012.

Tempur-Pedic International Shares Outstanding Chart

Tempur-Pedic International Shares Outstanding Chart by YCharts

Tempur-Pedic also guided sales expectations lower for the year. Sales grew 28% in 2011, but not are only expected to grow by 15%.

Operating margins had been on a steady climb but slipped in the fourth quarter due, in part, to a 35% rise in selling and marketing expenses. "Over the next year, we plan to increase our rate of investment in areas that will drive growth including a major new product launch, increased advertising, and expanded distribution," said Tempur-Pedic CEO Mark Sarvary.

With higher costs on the way, perhaps investors should start sleeping with one eye open.

Michael McHugh is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings, stock screener and portfolio strategies.

Read more articles about: Company Analysis  

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