Warning that you might go out of business isn’t the sort of thing that tends to send a company’s stock soaring, but that’s exactly what happened to Tupperware recently.
The company revealed in April that it was in danger of going out of business, with sales slowing just as interest rates on its $700-million US debt load moved in the opposite direction.
The company has had an up and down few years of late, with sales booming in the early days of the COVID-19 pandemic as demand for food storage containers went through the roof — with consumers eschewing restaurants and dining almost exclusively at home amid lockdowns.
As recently as 2021, Tupperware’s shares were changing hands at more than $40 apiece on the New York Stock Exchange. But it’s been a slow and steady decline ever since, as its main business model of selling directly to consumers has fallen out of favour.
By the early part of this year, the company was warning investors about “doubts regarding its ability to continue as a going concern,” sending the stock tumbling to less than $1 a share. In June, the NYSE warned that its shares were in danger of being delisted due to their newfound status as a penny stock.
By the end of that month, Tupperware’s shares were changing hands at barely 61 cents a share. In a filing related to its restructuring process, the company revealed it had signed a waiver with one of its major lenders to buy it time to come up with a solution — which seems to have been the catalyst for a breathtaking turnaround in its fortunes.
Just as they did for GameStop, AMC, BlackBerry and others, small retail investors started pouring money into the company’s shares — taking the price from 64 cents a share on July 19 to $5.70 on Tuesday, for a gain of more than 700 per cent.
Stephen Foerster, a finance professor at Western University’s Ivey Business School in London, Ont., said Tupperware has all the hallmarks of being the latest meme stock.
There’s no hard and fast definition of what one is, but generally they tend to be popular with retail investors who pump up the shares in online communities.
“Meme stocks experience price spikes, huge increase in trading volume, and they trade at a value that appears to be excessive based on traditional valuation metrics,” Foerster said in an interview. “If I go through that list, Tupperware checks all the boxes.”
Tupperware has about 40 million shares, and more than five times in the past two weeks, over 100 million shares have changed hands — meaning the entire company was bought and sold, multiple times over, by investors looking to make a quick buck.
Another ‘short squeeze’
A major hallmark of meme stocks is a heightened level of short-selling activity, which occurs when some investors make money by betting that the price of the stock will go down.
They do this by borrowing shares from existing owners, selling them at the current price, banking on being able to later buy back the shares they borrowed for a cheaper price and pocketing the difference.
WATCH | How short selling works:
How short selling works
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Duration 0:46
An animated explanation of how people make money from stocks losing value
The fee to borrow the shares to short them is up to 140 per cent, according to Fintel, but that hasn’t dampened demand. More than 27 per cent of Tupperware’s shares are currently being shorted, which is an ideal condition for a “short squeeze” — a scenario where rising stock prices force short sellers to buy into the company to cover their losses, causing more and more buying pressure as they do.
Short squeezes were a major factor in dramatic run-ups in stocks like GameStop and AMC a few years ago, and Foerster said it appears to be at play with Tupperware, too.
“They become a battle between, typically, retail investors who have an informal pact between one another to keep buying and not selling, versus professional investors who are … rationally expecting the value of the stock to go down based on fundamentals,” Foerster said.
“Sometimes market participants don’t act rationally. On the other hand, acting rationally, you can also end up getting burned.”
So-called meme stocks like GameStop rose to prominence in 2021, with shares in the video game retailer finding themselves at the centre of a battle between retail traders looking to teach Wall Street a lesson, and sophisticated investors known as short sellers. (Dado Ruvic/Reuters)
While a short squeeze is clearly afoot, some investors say that’s not all that’s going on. Calum Rodger of Winnipeg, who produces investment content on his YouTube channel Trending Stocks, said despite whatever problems Tupperware has, a stock price below $1 wasn’t justified, so trading in shares to a point where they are now worth more than $200 million is more than warranted.
“Realistically, it still isn’t close to where it should be,” he told CBC News in an interview, noting that before the recent flurry, Tupperware was trading at less than its book value — a metric for measuring a company’s value by tracking what its components are worth from an accounting perspective.
Volatility expected
The company’s revenue growth is slowing and the debt load is a concern, but the underlying business still generates cash flow, Rodger said. “Based on fundamentals like price-to-sales ratio, it should be around $8.”
Rodger said he tends not to trade in stocks experiencing a short squeeze because he doesn’t share that “fight against the power” ethos of teaching Wall Street a lesson that many retail traders tend to have. But he said there are reasons to bid up the company’s shares even without trying to get in on a short squeeze.
“They kind of go hand in hand in this play,” he said. “The shorts have excessively overextended themselves, [so] it’s still a good opportunity to make some good money.”
But Foerster said buying the stock of a company that has warned of its own demise, after an eight-fold increase in the share price, is folly.
“This is a record that has been played over and over and over again. A lot of excitement about a stock, some tremendous, exceptional performance in a short period of time and then eventually — just like the laws of gravity — the stock comes crashing down,” he said.
“This story will not be a happy ending for many investors.”
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
