Shares of Casper Sleep (NYSE:CSPR), which makes mattresses, beds, pillows, and sheets, rose a quick 28% when trading got under way on April 26. That massive gain in the first half hour of trading wasn’t driven by news out of the company, but by an analyst upgrade.
Investors tend to like it when analysts make positive calls on stocks, so it’s not shocking that Casper rose on the news of a Wedbush upgrade. While the price target improvement wasn’t all that large on an absolute basis, with the analyst taking the call from $10 per share to $10.50, the stock closed out the prior day of trading at roughly $7 per share, so there’s notable upside if the Wedbush analyst’s target proves accurate, even after today’s rather large early gains.
The bigger change, meanwhile, was the shift from neutral to outperform. Although every Wall Street firm is different, that’s basically making Casper a buy. The analyst believes the company has a solid path for revenue growth and, eventually, profitability. All in, this was a pretty positive call on the stock.
Casper is a growing company, but as of yet it is not a profitable one. Long-term investors should probably take the Wedbush update with at least a small grain of salt. Yes, today’s call is good news. Yes, it appears that Casper is moving in a positive direction, business wise. But neither of these facts offset the fact that the market is pricing in a lot of good news today for a company that is still bleeding red ink. If the enthusiasm doesn’t hold, the stock could quickly fall back down to earth.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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