Why Sleep Country Stock Jumped 10% on Friday

Sleep Country (TSX:ZZZ) stock saw shares climb over 10% after reporting earnings that came in far higher than estimates.

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published March 4, 2022 3:15 pm EST

| More on: ZZZ

Sleep Country Canada Holdings (TSX:ZZZ) saw shares jump over 10% on Friday after earnings for the quarter and full year came in stronger than anticipated.

What happened?

Sleep Country Stock climbed over 10% after reporting full-year and fourth-quarter earnings that beat out estimates. The sleep retailer reported revenue up 9% year over year for the quarter and 45% compared with 2019 levels. Meanwhile, EBITDA also increased 8.5%, with e-commerce sales making up 20.9% of revenue in the fourth quarter.

Revenue for the full year for Sleep Country stock also increased, by 21.4% year over year. EBITDA soared by 19.9% year over year, with e-commerce sales making up 23.5% of revenue for the year. Earnings per share beat estimates at $0.83 in the fourth quarter, and $2.64 for the year.

So what?

Sleep Country stock didn’t fall asleep on the job just because of the pandemic. Instead, the company found major opportunities that are seriously paying off. One, of course, is e-commerce. However, a lot of the recent growth in share price comes from the possibility of more revenue on the way.

Sleep Country has seen substantial revenue growth over the last two years, but management believes investors should look out for more. This comes from building and expanding its sleep “ecosystem.” That’s come from the acquisition of Hush and investment in Sleepout. Furthermore, its retail footprint included expanding to Express stores in Walmart Supercentres.

So, even with COVID-19 continuing to put pressure on the company, Sleep Country stock managed to soar past pre-pandemic revenue levels. Even as many consumers continue to be unable to purchase mattresses in store.

Now what?

Even more growth is on the way, according to management. Sleep Country stock launched its store on the Loblaw marketplace in January 2022 and amended its existing credit facility. It now has $260 million, which includes another $100 million extended to Oct. 22, 2026.

Furthermore, investors also received an added dividend for the quarter. Canadians can look forward to a 2.77% dividend as of writing. But the best news? The stock is still a steal! Sleep Country trades at just 12.86 times earnings even after the jump. Analysts give it a target price of $44 — a potential upside of 44% as of writing.

Shares of Sleep Country stock are up 8.5% as of writing and down 19% year to date.