Motley Fool
0
All posts from Motley Fool
Motley Fool in Motley Fool,

Why Mattress Stocks Are Surging Today

What happened

Shares of mattress companies Select Comfort (NASDAQ: SCSS) and Tempur Sealy International (NYSE: TPX) jumped on Thursday due to speculation that an acquisition or merger in the mattress industry was in the works. Select Comfort stock was up about 12% at 11:45 a.m., while Tempur Sealy stock had risen about 6%.

So what

This speculation about a deal in the mattress industry comes from Dealreporter. Adding to the drama: Tempur Sealy entered into a standstill agreement on June 26 with director Usman Nabi which, among other things, prohibits the disclosure of confidential information and restricts trading of the company's shares.

Image source: Select Comfort.

Tempur Sealy is the larger of the two companies, with annual revenue of $3.1 billion and a market capitalization of $2.9 billion. The smaller Select Comfort produced revenue of $1.3 billion last year and is valued at $1.6 billion. If Tempur Sealy were to acquire Select Comfort, it would create a mattress behemoth with nearly $4.5 billion of annual sales.

The mattress industry has been roiled in recent years by start-ups like Casper. These companies manufacture foam mattresses and mail them to customers, offering a generous return period, often 100 days. Casper reportedly nearly sold itself to retailer Target earlier this year; in the end, it raised money in a funding round led by Target. Its mattresses are also now available in Target's stores.

Given the disruption occurring in the mattress industry, a tie-up between two big players isn't far-fetched.

Now what

Shares of Select Comfort and Tempur Sealy are rising on the thinnest of rumors. While it can be tempting to buy the stocks in hopes that a deal takes place, investing based purely on rumors and speculation is a recipe for disaster. It's impossible to know the odds of a deal being struck, or even whether talks are taking place.

Having said that, the success of mattress upstarts like Casper puts pressure on established players in the industry. I wouldn't bet on it, but a merger between Tempur Sealy and Select Comfort is well within the realm of possibility.

10 stocks we like better than Tempur Sealy International
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Tempur Sealy International wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of June 5, 2017

Timothy Green has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.