Tile Shop dives on allegations of lead contamination, unsustainable margins, rich valuation


Tile Shop (TTS -4.3%) shares slide on a short report penned by SA contributor Infitalis.

The piece cites independent laboratory testing results which found significantly elevated levels (and above acceptable levels issued by the Consumer Product Safety Commission) of lead content in tiles sold by the company. Infitalis believes the information will lead "droves" of customers to purchase tiles elsewhere while the company faces "crippling liabilities from regulatory actions and class-action lawsuits regarding damages associated with its sale of lead contaminated products."

Infitalis observes that tile is a commodity product and that Tile Shop's margins are unsustainable: "Home Depot and Lowe’s [...] earn 13.2% and 10.6% EBITDA margins, respectively, versus The Tile Shop’s 27.0% LTM EBITDA margins."

Among a myriad of other allegations, Infitalis notes that insiders have sold shares aggressively and will continue to do so as lock-ups expire while the company will fail to live up to lofty Street estimates predicated on continued accelerated store expansion.

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