Sleep Number trades at $7.90 per share and has stayed right on track with the overall market, gaining 14.6% over the last six months. At the same time, the S&P 500 has returned 16.2%.

Is there a buying opportunity in Sleep Number, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Do We Think Sleep Number Will Underperform?

We're sitting this one out for now. Here are three reasons we avoid SNBR and a stock we'd rather own.

1. Flat Same-Store Sales Indicate Weak Demand

Same-store sales show the change in sales for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year. This is a key performance indicator because it measures organic growth.

Sleep Number’s demand within its existing locations has barely increased over the last two years as its same-store sales were flat.

2. Revenue Projections Show Stormy Skies Ahead

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Sleep Number’s revenue to drop by 5.6%, a decrease from This projection doesn't excite us and indicates its products will see some demand headwinds.

3. Short Cash Runway Exposes Shareholders to Potential Dilution

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Sleep Number burned through $12.66 million of cash over the last year, and its $933.7 million of debt exceeds the $1.35 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the Sleep Number’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Sleep Number until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

Final Judgment

We cheer for all companies serving everyday consumers, but in the case of Sleep Number, we’ll be cheering from the sidelines. That said, the stock currently trades at 1.7× forward EV-to-EBITDA (or $7.90 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. Let us point you toward an all-weather company that owns household favorite Taco Bell.

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