Shares of Sleep Country Canada Holdings (TSX:ZZZ) rose slightly last week as the company came out with earnings. And yes, I’m a little late to the game. But that’s on purpose. Rather than discuss earnings as they happen, I want investors to take a beat. Look at the earnings and listen to what analysts have to say before jumping in on a stock that could fall back or climb higher after earnings come out.
That’s why we’re going to take a step back now and see whether ZZZ stock looks like a smart buy right now. Let’s look at what happened and whether that holds true on the TSX today.
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What happened?
ZZZ stock reported earnings last week that showed profit was down significantly year over year. The fourth quarter brought in $22.5 million compared to $40.5 million the year before. However, revenue was up slightly, hitting $255.6 million from $253 million in the fourth quarter of 2022.
The profit decline came from industry challenges, according to ZZZ stock, with new stores and acquisitions helping to increase revenue. This trend was also felt for the year, with earnings down 36% in 2023 compared to 2022 levels.
Even so, it seems as though ZZZ stock and its management are positive about the future. And they’re putting their money where their mouth is. The company announced it received approval to buy back up to 10% of its shares over the next year. So, should investors get on board?
Why buy?
Based on recent performance and analyst recommendations, there are certainly a few reasons to buy ZZZ stock at these levels. Analysts predict there should be significant earnings growth in 2025 due to recent acquisitions by the company as well as integration efforts. Further, there should be more recovery in 2024, with sales expected to climb year over year — even as early as the second quarter.
Plus, ZZZ stock is experiencing strong growth in online sales, with new store concepts also performing well. This includes an Endy brick-and-mortar store, as well as a premium furniture store.
And, of course, you can’t ignore the share price. ZZZ stock is trading at a discount compared to historic levels, making it a strong opportunity for investors. And don’t ignore a 3.25% dividend yield at these levels, either.
Why wait?
Of course, the reasons to wait are also a bit obvious. And that comes down to earnings. The recent quarter came in lower than expected for the quarter, specifically earnings per share (EPS). This could be a sign that the company is struggling to keep up, and that raises concerns about future profitability.
There is also the concern about the current and ongoing consumer environment. Of course, this could also lead to lower sales no matter how many stores the company opens. These short-term challenges have led some analysts to even downgrade the stock to “neutral” from “outperform.”
So, the question is, are you willing to wait? If so, right now certainly does seem like a great time to get in on a historically low share point — especially if we do see growth of 20% or more by 2025 from acquisitions and more. What it comes down, as always, is your own risk tolerance and long-term goals. Once considered, that 3.25% dividend yield alone could help you through the tough times as you wait for the good times to roll again.
