Gathering New Information about Stocks, Health, and Sports

         The Furniture and Fixture industry is comprised of many small capitalization companies, and seven middle and large capitalization companies. Of the latter seven, investors will find a variety of different corporations. Herman Miller, HNI, and Sealy are some of the prominent companies to evaluate. While these companies all have their respective strengths and weaknesses, another company similar in market size and annual sales has better strengths and less weaknesses. This article will examine the business model and financial analysis of Tempur-Pedic International (TPX) to illustrate why investors should highly value this stock.

         Looking at the business model, according to Reuters, Tempur-Pedic "is a manufacturer, marketer and distributor of mattresses and pillows." Two distinct products that take up 69% and 13% respectively of sales may be worrisome to investors. However, these products will always be sought out by consumers. It is true mattresses and most pillows are durable goods, but consumers will eventually change their mattresses and pillows or buy new ones regardless of economic conditions. These goods are also quite different from a normal pillow or mattress. Tempur-Pedic uses innovative technology to create mattresses like The BellaSonna Bed and The SymphonyBed. These patent-pending beds made up of latex and foam provides comfort when sleeping. Consumers realize the differentiation and will begin and continue to buy this type of product. Not only will domestic individuals purchase this product, but consumers from over 70 other countries which Tempur-Pedic operates in will also be buyers. With an extraordinary low dollar poised to move even further to the decline, exports will run rampant for United States goods. And Tempur-Pedic will be the beneficiary of this event.

         Tempur-Pedic's model has impacted its financial statements. Revenue over the past year reached $945 million. While this number was a bit low compared to industry standard, Tempur-Pedic incorporated itself in 2002 and is still in growth mode. Moreover, the recent growth over the past five years has made Tempur-Pedic an excellent stock to own. Share price has appreciated 120% since its IPO in 2004 and has only performed poorly in one year (2005). However, in 2006 this company had share price appreciation of 78% and currently is up 65% in 2007�a phenomenal achievement considering the recent economic uncertainty. Therefore, technical analysis looks excellent given the sales figures, and momentum is absolutely to the upside for this company.

         Closer analysis of fundamentals supports the aforementioned argument. In the last fiscal year, according to Reuters, gross margins stood at 48.47%. While this number was slightly lower than the company's five year average, the margins were significantly above the industry average of 32.02%. In addition, costs were indirectly saved as operating margins stood at 20.87%, above the five year average and way above the industry average of 8.78%. More importantly, net profit margins of 11.95% were also much higher than the industry's 4.79% and the respective five year average of Tempur-Pedic of 10.51%. Looking at the main industry competitors for this company, only Sealy Corporation was able to be close in terms of gross margins at 43.85%, but still lag significantly with net profit margins at 5.64%. Moreover sales in the last year for Tempur-Pedic were up 17.64%. Growth was also high relative to earnings at 34.90%. Both these numbers were above the respective industry averages of 2.41% and 2.22%. And only Herman Miller out of the three companies mentioned in the introduction was able to produce better earnings growth at 37.42%. Although Tempur-Pedic only has spent about 1.60% in capital over the past five years, cash flow is still positive which is surprising for a relatively new company. This extra cash also allows a sound dividend yield 0.95%--a detriment to retained earnings, but a risk-adverse benefit for investors.

         While growth is excellent for Tempur-Pedic, some investors may question the overbought valuation. Currently, the corporation sees a 2007 forwards P/E ratio of about 20.00. The industry's average is comparable, but market-cap competitors like Sealy and HNI are reporting forward ratios near 14 and 15. In addition price to sales for Tempur-Pedic at 2.55 (forward) may also be a warning sign that this company is due for a share price readjustment. However, the important indicator to heed in this situation is return on equity. Currently Tempur-Pedic has an astonishing ROE of 73.71%. This number blows out the five year average of 50.07% and obliterates the industry decelerating trailing ROE of 20.33%. Only Herman Miller can be attributed as a market competitor with a higher value at 87.91%, but Tempur-Pedic's higher five year average shows sustainability for the future. And if net profit continues (as it should) to sore at such unrelenting levels, investors should be willing to purchases shares at a bit higher-than-normal price. A good way to tell if growth is responding well to valuation is looking at the PEG ratio. Using a five year growth estimate from Yahoo! Finance, a ratio of 1.13 is found. Comparing this number to Herman Miller's 1.45 or HNI's 1.39 ratio, and evidence is supportive of the fact that Tempur-Pedic is growing at an amazing level with the proper valuation to associate this growth.

         In terms of other financial indicators, Tempur-Pedic's balance sheet is spectacular. A current ratio of 2.19 indicates strong solvency and cash potential, and interest coverage of 8.08%--above the industry average also indicates strong internal growth. Management led by CEO H. Thomas Bryant is quite sound as well. Tempur-Pedic's 1300 employees have developed a culture were inventory turnover is solid at 7.05 and accounts receivable turnover is also good at 7.69. Taking all these different indicators into consideration, and investors should realize the incredible benefits owning Tempur-Pedic will yield.

         And now would be the perfect time to own this stock. Technical analysis indicates an upward trend in parabolic SAR and both SMA and EMA on a 50 day basis. RSI is a bit strong at 66, but that should not deter investors. Tempur-Pedic has ridden out the recent volatility in the market quite well. If favorable news comes out about lower interest rates corresponding to lower currency values, this company will continue to feed of its momentum. Therefore, given the business model and fundamental analysis presented in this article, there is plenty of evidence that investors should consider having this company as a part of a diversified portfolio.

-Dennis Biray
September 14th, 2007