Purple Innovation, Inc. (NASDAQ:PRPL) is renowned for its innovative approach to comfort technology, focusing primarily on mattresses and bedding products. Despite its creative product line, the company faces challenges in capital efficiency. The comparison of Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) is crucial in assessing how well Purple Innovation is utilizing its capital.
Purple Innovation's ROIC stands at -19.51%, while its WACC is 9.87%. This results in a ROIC to WACC ratio of -1.98, indicating that the company is not generating enough returns to cover its cost of capital. This negative ratio suggests inefficiencies in capital utilization, which could impact the company's long-term financial health.
In comparison, The Lovesac Company (LOVE) has a ROIC of 7.16% and a WACC of 9.71%, resulting in a ROIC to WACC ratio of 0.74. Although Lovesac's returns are below its cost of capital, it is closer to breaking even compared to Purple Innovation. This suggests that Lovesac is managing its capital more effectively.
Vroom, Inc. (VRM) stands out with a ROIC of 14.05% and a WACC of 8.39%, leading to a ROIC to WACC ratio of 1.67. This positive ratio indicates that Vroom is generating returns well above its cost of capital, showcasing efficient capital utilization. This sets a benchmark for Purple Innovation and its peers in terms of capital efficiency.
Other peers like The RealReal, Inc. (REAL) and CarParts.com, Inc. (PRTS) also struggle with negative ROIC to WACC ratios of -2.53 and -8.61, respectively. These figures highlight the common challenge of capital inefficiency within the industry, emphasizing the need for strategic improvements in capital management.
