Purple has gotten torched over the last six months - since December 2025, its stock price has dropped 47.5% to a new 52-week low of $0.39 per share. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Purple, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Purple Will Underperform?
Despite the more favorable entry price, we’re swiping left on Purple for now. Here are three reasons we avoid PRPL, plus one stock we’d rather own.
1. Revenue Spiraling Downwards
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Purple struggled to consistently generate demand over the last five years as its sales dropped at a 8.4% annual rate. This was below our standards and is a sign of poor business quality.
2. New Investments Fail to Bear Fruit as ROIC Declines
We like to invest in businesses with high returns, but the trend in a company’s ROIC can also be an early indicator of future business quality.
Over the last few years, Purple’s ROIC has unfortunately decreased. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
3. Short Cash Runway Exposes Shareholders to Potential Dilution
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
Purple burned through $15.22 million of cash over the last year, and its $231.1 million of debt exceeds the $24.96 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
Unless the Purple’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.
We remain cautious of Purple until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of Purple, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 13.4× forward EV-to-EBITDA (or $0.39 per share). This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now. We’d suggest looking at a top digital advertising platform riding the creator economy.
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