Watch Out: Barbarians At The Gate For Tempur Sealy International (TPX)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Tempur Sealy International ( TPX) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Tempur Sealy International as such a stock due to the following factors:

  • TPX has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $55.4 million.
  • TPX has traded 92,085 shares today.
  • TPX traded in a range 202.7% of the normal price range with a price range of $3.42.
  • TPX traded above its daily resistance level (quality: 27 days, meaning that the stock is crossing a resistance level set by the last 27 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on TPX:

Tempur Sealy International, Inc. engages in the manufacture, marketing, and distribution of bedding products in North America and internationally. The company offers mattresses, pillows, and adjustable bed bases, as well as various cushions and other comfort products. TPX has a PE ratio of 39.4. Currently there are 4 analysts that rate Tempur Sealy International a buy, no analysts rate it a sell, and 6 rate it a hold.

The average volume for Tempur Sealy International has been 840,800 shares per day over the past 30 days. Tempur Sealy International has a market cap of $2.9 billion and is part of the consumer goods sector and consumer durables industry. The stock has a beta of 2.20 and a short float of 14.8% with 5.77 days to cover. Shares are down 12.1% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Tempur Sealy International as a hold. The company's strengths can be seen in multiple areas, such as its notable return on equity, robust revenue growth and increase in net income. However, as a counter to these strengths, we also find weaknesses including premium valuation and generally higher debt management risk.

Highlights from the ratings report include:
  • Compared to other companies in the Household Durables industry and the overall market, TEMPUR SEALY INTL INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • TPX's very impressive revenue growth greatly exceeded the industry average of 26.3%. Since the same quarter one year prior, revenues leaped by 111.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
  • The debt-to-equity ratio is very high at 22.55 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, TPX's quick ratio is somewhat strong at 1.00, demonstrating the ability to handle short-term liquidity needs.

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