Shares of Tile Shop Holdings (NASDAQ:TTS) are down more than 38% today after Gotham City Research released a report that the company had overstated its 2013 earnings by about 200%. Motley Fool One senior analyst Bryan White doesn't know if the report is completely accurate, but he can't deny that he thinks the company's unbelievably strong margins are too good to be true. Tile Holdings, much like Lumber Liquidators, provides goods that homeowners need to be able to rely on, and Bryan thinks that both companies are so profitable because they're undercutting competition on prices and the only way to do that is to have cheap, less reliable materials. That, combined with the news from Gotham, makes Bryan think that investors should steer clear of Tile Shop Holdings.
Fool contributors Bryan White and Mark Reeth have no position in any stocks mentioned. The Motley Fool recommends and owns shares of Tile Shop Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.