There are two investment strategies:
- If a thing goes up, you buy it; if it goes down, you sell it.
- If a thing goes up, you sell it; if it goes down, you buy it.
The first is sometimes called "momentum," and the second is sometimes called "value," but you can crudely shove pretty much any investment strategy into one of these buckets, or at least a combination of the two.
Matt Levine made this point in a recent Money Stuff column. It resonates for me. As much as one should pay attention to fundamentals, when time is short it's easier to do the first analysis based on price. "If stock XYZ sells off, maybe the people who sold it are wrong, and with the right time horizon there could be an opportunity here," goes my thinking in these cases. The analysis doesn't stop there, but it's a way to spot an idea. And there are others who say, "if stock XYZ is going higher, that means there's a good reason, better buy it as it keeps going," and start their investment process there.
If you take the "value" logic, then The Tile Shop (TTS) has a lot of value to it these days. The company has shed an average of 35% from its share price in each of the last three earnings seasons, finding a new floor each time. Declining comparable sales, executive turnover, and competitive threats - it's all there for The Tile Shop, marking an ominous pattern for investors.
Source, the 1980s
Michael Rogus stepped into the breach to make a bull case for the company last week. He was measured in his analysis, but he used one of the most enticing and dangerous words in investing, especially for a retail company: turnaround.
Can The Tile Shop achieve a turnaround, and can retail turnarounds turn around? That's the topic of this week's Behind The Idea.
Items covered (with times in the podcast in parentheses)
- A review of TTS's unhappy 2017 (1:30)
- Breaking down Rogus's TTS article (4:30)
- The elephant in the room (Amazon (AMZN)) and a potential fence against it (14:40)
- Are the gross margins sustainable? (21:45)
- The limits of what an external investor can know (24:40)
- Can retail turnarounds turn around? Why are they so hard? (30:15)
- Our biggest concerns with The Tile Shop (35:45)
We hope you enjoy the podcast. If you have a chance, subscribe on iTunes and rate or leave us a review. We're also available on Soundcloud and Stitcher. If you have any favorite articles you want covered, or any feedback, send me or Mike a direct message or comment below.
Source: Houzz.com - what a finished turnaround can look like.
Any retail turnarounds on your radar? There are plenty of stories to choose from, and as many hidden traps for investors. Let us know how you tell the difference between the two, or what your favorite tile is.