+ Watch TPX
on My Watchlist
The Company is a manufacturer, marketer and distributor of premium mattresses and pillows which are sold globally.
Quality5 yr avg ROIC 24% (98th percentile), 5 yr avg eps growth 19%, fcf/sales % 15.32(absurd), $1.68/share in cash, ZERO debt, quick ratio 1.73, rising FCF rising, and falling share count (buybacks). Also, people seem to really truly love their product, which happens to be a househld name. A narrow moat, i'd say.ValuationP/E 11 (10 after backing out the cash, and WAY below historic avg), PEG 0.9, EV/FCF 11.5(wow)This is a very high quality company at a silly low price. In fact, this may have been (back when I originally gave it the green thumb) one of the most mispriced equities i've seen in the two years since I became interested in the market. Simply mind boggling.
*disclaimer, the following will demonstrate how much of an amateur I am.*The Sealy acquisition is quite a puzzle for me. PROS: TPX takes over Sealy’s, which currently has the largest market share in the U.S. and controls 14% of all mattresses. The acquisition premium is only about 2%, which sound great. Also, Kyle Bass, who’s a pretty smart guy bought ZZ this quarter, so that makes me even more enthusiastic about the price TPX paid for ZZ. Most importantly, this takes out one of TPX’s biggest rivals. CONS: The acquisition of Sealy’s debt will bring TPX’s total debt to about 1.3 billion. What makes me nervous is 1.3 billion in debt for a combined company w/ 1.7 billion in assets and negative shareholder equity. (31 million from TPX and -50 million from ZZ) That means a debt to equity ratio of about 26. That’s scary. Conclusion? Then again, the combined EV/FCF is still under 16X, which seems cheap. TPX has a great history of lowering operating costs (which ZZ couldn’t do) and getting high returns on capital. This could be a GREAT acquisition by TPX, IF they actually reduce ZZ’s costs/debts, but the high leverage it will have to take on scares me. I’ve been trained to have an aversion to leverage. This is starting to sound a lot more like gambling than investing. I may be missing a future bagger here, but I’d rather invest than speculate outside my circle of competence. To many “ifs” and not enough competitive advantage. Pick closed.
Your pitch is so similar to my thinking it is scary. I ended my pick also for the same reasons in general. I also was going to keep my pick open for a bagger. I might revisit this pick a year later and take a look at the balance sheet and income statement but until then I will stay clear of this equity no matter how cheap it gets. And I really don't care if it doubles in the meantime. Big acquisitions and leverage are things I stay away from.
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