It is no secret that the housing market is the bedrock on which a strong economy is built. A high housing demand benefits a number of other industries ranging from building materials through mortgages to furniture. One of the many beneficiaries of the post-pandemic housing boom was Sleep Number (NASDAQ:SNBR). The company produces and sells mattresses through its network of over 660 retail locations in the US.
2021 sales rose 17.7% to a record $2.18 billion accompanied by a free cash flow yield of 10.7%. As it often happens, the market rushed to extrapolate the recent rosy past into the uncertain distant future. As a result, SNBR stock skyrocketed ten-fold from its March, 2020, bottom of $15.27 to as high as $151.44 a year later. Unfortunately for the bulls, trends don’t last forever.
Rising interest rates have led to a reduction in housing demand, which translated into less business for home furnishing companies. Hardly any sales growth is expected this year and the next. The market, as usual, was quick to sell first and ask questions later. A mere fifteen months since its all-time high, Sleep Number stock was down 80% to a June, 2022, low below $30 a share.
Sleep Number ‘s Crash Won’t Last Forever, Either
On the other hand, when it comes to a profitable and debt-free company such as Sleep Number, no crash lasts forever, either. Between June 30 and August 16, the stock surged from under $30 to over $50. The Elliott Wave structure of this rally suggests SNBR might have finally found a bottom. Take a look.
The 70.5% surge from $29.68 to $50.61 can be seen as a textbook impulse pattern, labeled 1-2-3-4-5. Impulses only develop in the direction of the larger sequence. This means that once the current corrective decline in wave (2/b) is over, more strength in wave (3/c) can be expected. Wave (2/b) is likely to evolve into a simple a-b-c zigzag and end near the support area around $40. Wave (3/c), in turn, is supposed to exceed the top of wave (1/a). Bullish targets above $51 and possibly towards $60 a share make sense. This is the count to rely on as long as the starting point of the impulse at $29.68 remains intact. It looks like Sleep Number stock has finally turned a corner and can start rising again.