This Stock Has Put Investors to Sleep

This company was once a stock I touted with great with excellent growth upside.

I saw its corporate strategy shifts as putting the company ahead of an inevitable secular shift to ecommerce and home delivery. However, Sleep Country Canada (TSX:ZZZ) is a stock which seems to have put most investors to sleep of late.

The company recently suspended its dividend and share buybacks at the beginning of last month, leaving investors to consider what the future for Sleep Country’s stock, and company, will ultimately be over the long term.

One of the key reasons for owning Sleep Country stock has been its dividend yield supported by what was once very reasonable (and growing) cash flows and rather bright growth story for a dull sector.

That said, I have commented in the past on what I viewed as a very high valuation, so I did anticipate some multiple contraction in the case of a recession. However, the decline in Sleep Country’s stock has surprised even me.

Sleep Country recently announced it would be reopening a number of locations across Canada as the COVID-19 restrictions continue to be lifted. However, I think the impact of this pandemic is likely to be more severe than anything.

Taking into context year over year profit decline of more than 25% in the first quarter, one can extrapolate just how bad Q2 may be, and fiscal 2020 for that matter, and not want to go anywhere near the stock.

Invest wisely, my friends.