On Thursday, April 7th, after the market close, TPX (Tempur Pedic International) said it expected to report strong first quarter results, and increased its full year guidance. In the past two reporting periods, TPX announced earnings prior to SCSS (Select Comfort Corporation). In each case a solid earnings report by TPX was followed by a solid earnings report by SCSS. We took last night’s announcement as a strong indicator that SCSS would also report robust results in late April. The 5*SCSS – 1*TPX spread has been trading around $10 since last quarter’s results. It closed at $10.76 on April 7th, so when it dipped below $8 in afterhours trading we bought it. We bought some more on the morning of April 8th, also slightly below $8. As it turned out we could have waited a little longer because the spread at one point dipped below $5 and closed Friday at about $5.60. Nevertheless, based on Cockroach Theory, we are confident it will return to the $10 plus level.
Written by Norm Winer. Follow me on Twitter and StockTwits.