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Cramer: This market has zero appetite for low-quality IPOs like Casper Sleep

Key Points
  • CNBC's Jim Cramer said Friday he is glad investors showed discipline around the IPO of Casper Sleep.
  • "That tells you this red-hot market still has discerning taste, that investors still have a healthy dose of skepticism," the "Mad Money" host said. 
  • While Cramer said he likes some aspects of Casper, "there are way too many negatives here and not enough positives." 

Investors showed discipline around the IPO of Casper Sleep, and that is a good sign for the market, CNBC's Jim Cramer said Friday.

"I'm glad that there's little appetite for something like Casper," the "Mad Money" host said. "That tells you this red-hot market still has discerning taste, that investors still have a healthy dose of skepticism. That's what you need if a market's only going to continue to go higher."

Shares of Casper fell 18% to close at $11.05 on Friday, the mattress retailer's second day as a publicly traded company.

The company's shares opened at $14.50 on Thursday, a more than 20% bump from the $12 offering price, before closing at $13.50. They reached an intraday high of $15.85.

Casper, which began selling mattresses online five years ago, has as partners big-name investors, such as actor Leonardo DiCaprio, and big-name retailers, such as Costco and Amazon. It also sells pillows, bedroom furniture and fixtures, such as lamps.

Cramer said he liked some of what the company has to offer — "I like the product ... I like the brand," he said — but stressed his concerns are more about its fundamentals and the risk they pose to investors.

Those concerns include significant losses and slowing growth. Casper had a loss of $92.1 million in 2018 and $73.4 million in 2017 on net revenues of $357.9 million in 2018 and $250.9 million in 2017.

Casper grew by 20% in the first nine months of 2019, down from 43% in 2018, Cramer said.

"I regard that as a major slowdown, not a speed-up. Wall Street loves growth, but it's a lot less impressed by rapidly decelerating growth," he said.

He also highlighted the roughly $80 million worth of refunds, returns or discounts Casper had in the first nine months of 2019.

"That's like 20% of their gross sales," he said. "It strikes me as a very high number ... Either they're marking down merchandise aggressively or they're seeing too many returns."

Cramer voiced another overarching concern about the mattress industry.

Casper, through its direct-to-consumer model, may be a disruptor but it's operating in a competitive industry alongside the likes of Tempur Sealy, Sleep Number and Purple Innovations, Cramer said. Plus, those three companies are profitable, he noted.

"Casper's not growing fast enough to appeal to the growth junkies and as a money-losing operation it can't appeal to the value guys," Cramer said.

But Casper might have had appeal if it went public before WeWork's failed IPO last fall, Cramer said.

Concerns about WeWork's valuation and governance helped recalibrate the mindset of many public market investors, shifting focus away from growth at all costs and reemphasizing the bottom line and a path toward profitability.

And right now, Casper is on the wrong side of that equation, Cramer said. For evidence, he said look no further than Casper's initial market value of $476 million, which is notably lower than the $1.1 billion valuation from Casper's latest round of private funding.

"I'm not interested in the stock here," he said, adding: "There are way too many negatives here and not enough positives."

Cramer said he has nothing against new companies going public, but argued it may take some time for a fresh round of high-quality debuts.

He said there were some in 2019 that were overshadowed by the IPOs of companies such as Uber and SmileDirectClub.

"For now, I'm just glad investors aren't falling for companies with good marketing but slowing growth and zero profitability," he said.

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Cramer: This market has zero appetite for low-quality IPOs like Casper Sleep

Disclosure: Cramer's charitable trust owns shares of Amazon and Costco.

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