Eve Sleep Jumps 40% On DFS Deal – Rerating To Continue?

Eve Sleep (LON: EVE) shares are a tiddler even by the standards of the lower end of the London market. Total capitalisation is around £5 million – a company the value of a decent-sized London house. This means that Eve Sleep is going to be risky as an investment of course for any change in activity is going to have a large effect upon something that small. This also applies to beneficial changes of course which is why Eve Sleep shares are up 40% (actually, 48% now, given the time to type this first paragraph) on the announcement of the deal with DFS.

Eve Sleep is a direct-to-consumer retailer of “sleep wellness” products which the rest of us would probably call mattresses. This is one of the grand new battles in the online world. It all started, as we know, with Amazon and books. Would folk be willing to buy books without peeking into them in a bookshop? The answer turned out to be yes. Folk have now tried this with near everything and it turns out that we all will buy groceries, clothes, without smelling the meat or trying them on. So, why not mattresses?

Also Read: The Best AIM Shares to Buy Right Now

There are a number of companies in the field and we’ve all probably seen more than one ad for them. Perhaps more common in America but still, it’s something being tried. Get a mattress delivered, sleep on it for a bit, decide whether to buy or return.

The big cost here is getting people to grasp that the mattress provider exists. As the big cost in the old system is the chain of physical stores that display mattresses. One cost is exchanged for another.

But perhaps it’s possible to short circuit that? If the mattress can be sold without the burden of the advertising spend then could that be the business model breakthrough that provides a significant advantage?

Which is where the DFS tie-up comes in. DFS currently advertises all the time – as we know. But they sell upholstered furniture rather than beds. So, add beds and mattresses to the offerings, and why not? At first, this deal is to be alongside the DFS direct sales from the website. Which does rather neatly solve that advertising cost problem. The cost of putting an extra item onto a website is not, as we might imagine, really all that large.

This neatly explains the excitement in the Eve Sleep share price today. Actually, it’s now 57% up given the time necessary to type the above few paragraphs. The question for us as traders though is will this continue?

To really work that out we need one more piece of information. What are the details of the deal with DFS? At base, what margin is DFS going to take of any sales of Eve Sleep through the DFS website?
Until that we can’t know the long-term destination of the Eve Sleep share price. Any trading now will have to be upon momentum grounds.