Thursday, November 1, 2018

Sleep Country Canada

Why buy a mattress anywhere else? If you're anything like me, you may have been put off by Christine Magee's hollow sales pitches. I always imagined her as a zombie queen preaching to a flock of lobotomized sheep. Even they seemed disinterested.

Mattresses have never been hard to come by. And with the internet revolution, you can now buy mattresses online. I don't know if you've heard of Amazon or not, but they sell them.

I was shocked when I learned that ZZZ trades at 3.5 times book value. I bought my last mattress at Canadian Tire (3.4), and the one before that was Wal-Mart (4.1). I realize p/b isn't the end-all, but I think you'll agree that one of these names is not like the others. On what grounds does it trade at such a high multiple? (Some Canadian value investors like Reitmans in the retail sector because it has no debt; it trades at 0.7)

I suppose some people might enjoy the service that ZZZ offers. You know, walking into a mostly empty store and being stared down by a commissioned sales person who sees you as a meal. Whorls of dust rising in the columns of light slanting in the window. Still air. Sweat. Confusion. Silence except for the $28 Oxfords galloping towards you.

True, ZZZ owns about a quarter of the market today. How does that improve when you can buy a cheaper bed online? Who wakes up and decides that they want to spend their day off visiting mattress stores?

Other considerations include the notion that we may be approaching a recession, when people don't buy as many mattresses. And that with the rise of passive investing, stocks outside the indexes are going to get hurt. ZZZ is not in the S&P/TSX 60.

Shorting, especially for retail investors, is generally a loser's game. But this one is tempting. (I looked at writing naked calls but the options market for this company is tepid.)

No comments:

Post a Comment