Why Mattress Firm (MFRM) Soared Higher

NEW YORK (TheStreet) -- Mattress Firm (MFRM) shares saw double-digit gains on rumors it is seeking to acquire Sleep Train. By midday, shares had added 14.4% to $45.06.

On Tuesday night, The New York Post reported the number one mattress chain in the U.S. was interested in purchasing Sleep Train, a retailer with major presence in California. According to sources, the acquisition would be financed through an all-stock deal worth around $200 million.

Houston-based Mattress Firm has yet to respond to the rumors.

TheStreet Ratings team rates MATTRESS FIRM HOLDING CORP as a Hold with a ratings score of C. The team has this to say about their recommendation:

"We rate MATTRESS FIRM HOLDING CORP (MFRM) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow, generally higher debt management risk and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • MFRM's revenue growth has slightly outpaced the industry average of 7.6%. Since the same quarter one year prior, revenues rose by 17.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 43.24% and other important driving factors, this stock has surged by 66.04% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • 41.27% is the gross profit margin for MATTRESS FIRM HOLDING CORP which we consider to be strong. Regardless of MFRM's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 5.53% trails the industry average.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Specialty Retail industry and the overall market on the basis of return on equity, MATTRESS FIRM HOLDING CORP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • Net operating cash flow has decreased to $30.27 million or 16.74% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

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