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Purple Innovation Stock Falls on BofA Double Downgrade

'Our more cautious view is based on what we believe to be weak online and wholesale trends into Q4,' said BofA analyst Curt Nagle.
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Purple Innovation  (PRPL) - Get Purple Innovation, Inc. Report shares dipped Monday, after Bank of America double downgraded the bed products company to underperform from buy and cut its price target to $16 from $36.

The stock on Monday closed at $19.03, down 2.4%, and has dropped 26% over the last three months.

“Our more cautious view is based on what we believe to be weak online and wholesale trends into Q4,” BofA analyst Curt Nagle wrote in a commentary. “We had been expecting a sharp acceleration post a big capacity boost.”

More importantly, Purple Innovation was hurt by the announcement last week that Tempur Sealy (TPX) will introduce a direct competitor to PRPL's gel grid-based beds next year, he said.

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“TPX is by far the largest competitor in the space (35% [market] share in 2020), has been taking significant share and has strong product knowhow and manufacturing capacity,” Nagle wrote.

“We see this as the first real competitive threat to PRPL, and it could disrupt volume growth, pricing and wholesale expansion. This also comes at a very difficult time for PRPL after a year of execution and capacity issues, and questions on when a turnaround could begin.”

Also, “over the past two quarters, PRPL's online direct-to-consumer segment has trailed due to capacity constraints, the need to satisfy demand from wholesale partners and tough compares,” Nagle said.

“Wholesale expansion remains another important part of the PRPL growth story that we believe may be lagging and at risk of missing Street expectations. Excluding a launch into Sleep Country Canada in Q4, expansion has been minimal due to capacity constraints.”