Earnings growth of 27% over 1 year hasn't been enough to translate into positive returns for Sleep Number (NASDAQ:SNBR) shareholders

By
Simply Wall St
Published
April 17, 2022
NasdaqGS:SNBR
Source: Shutterstock

Investing in stocks comes with the risk that the share price will fall. Unfortunately, shareholders of Sleep Number Corporation (NASDAQ:SNBR) have suffered share price declines over the last year. In that relatively short period, the share price has plunged 59%. The silver lining (for longer term investors) is that the stock is still 27% higher than it was three years ago. Furthermore, it's down 32% in about a quarter. That's not much fun for holders.

After losing 4.4% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

See our latest analysis for Sleep Number

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the unfortunate twelve months during which the Sleep Number share price fell, it actually saw its earnings per share (EPS) improve by 27%. It's quite possible that growth expectations may have been unreasonable in the past.

It's surprising to see the share price fall so much, despite the improved EPS. So it's well worth checking out some other metrics, too.

Sleep Number managed to grow revenue over the last year, which is usually a real positive. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

earnings-and-revenue-growth
NasdaqGS:SNBR Earnings and Revenue Growth April 17th 2022

It is of course excellent to see how Sleep Number has grown profits over the years, but the future is more important for shareholders. This free interactive report on Sleep Number's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

We regret to report that Sleep Number shareholders are down 59% for the year. Unfortunately, that's worse than the broader market decline of 1.1%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Longer term investors wouldn't be so upset, since they would have made 9%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Sleep Number (at least 1 which is concerning) , and understanding them should be part of your investment process.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.