Tupperware: Showing Greater Value

In a blog post dated April 16^th, we noted that in the low $40’s Tupperware Brands (TUP) was overvalued. Furthermore, the stock was trading well outside of historical valuation norms in an unfavorable market climate. At that time, we suggested that TUP was a great sell candidate and shareholders could use gains from the stock to buy more undervalued securities.

Well, the price continued to rise for another week hitting multi-year highs before topping out at just below $45.  However, the momentum could not last and the stock has dropped 26% since that high. Today, with the stock trading under $33 per share, Ockham’s valuation-based rating has come full circle and we rate the stock a Buy.

To clarify, we are not saying that this is the optimal time to buy TUP, but rather the valuation has become far more favorable and justifiable. By our rating methodology, this stock falls just into the Buy category but by no means is this the most attractive stock in our universe. In order to demonstrate this point, let’s look at some standard valuation metrics.

In terms of its price-to-sales, TUP is fairly valued. Over the last ten years—weighting recent years more heavily—we have observed a normal range of price-to-sales for TUP of .73 to 1.1 and the current ratio is comfortably in between at .93. Using the same technique for price-to-cash flow, we find the normal range to be 7.1 to 10.5 and the current measure is almost exactly in the middle at 8.7. When we use these historical ranges and compare current sales and cash flow figures, we estimate TUP to be fairly valued at $34.27—which is not far from where it is currently selling.

As with many stocks in this bear market, TUP has fallen to a more justified valuation level. Although its sales growth is attractive, there are plenty of other stocks with more compelling valuations in this environment. At Ockham Research, we calculate a “margin of safety” number for each stock that ranks how undervalued it is compared to its historical norms (price-to-sales and price-to-cash flow metrics). When a stock trades significantly below the low end of that range, it has a higher margin of safety and is more appealing to us.

TUP’s current margin of safety number is not terribly compelling compared to other stocks in our universe. As such, we would become more positive on TUP if the price were to fall to $28 or below, which is not out of the realm of possibility in this market. At this time, we recommend that investors look for better opportunities in the market than Tupperware represents.