Tile Shop Just Got Smashed

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.

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Read/Post Comments (18) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 14, 2013, at 4:24 PM, Airpass wrote:

    Why are you both so negative on TTS today but none of your concers came out in the past few weeks when MDP was a strong supporter. I feel grossly misled!

  • Report this Comment On November 14, 2013, at 4:43 PM, mpmiller37 wrote:

    I'll second the comment from Airpass. Subscribers to Fool services PAY for these services assuming someone did their homework on the companies they recommend.

  • Report this Comment On November 14, 2013, at 5:05 PM, PALH wrote:

    I bought TTS on the strength of a Motley Fool recommendation. I don't expect to hit home runs every time at bat -- and Motley Fool has led me to quite a few -- but this blurb/report is completely inadequate, late and self-serving to boot. Why hasn't this stock been discussed in one of the Fool's daily emails?

  • Report this Comment On November 14, 2013, at 6:23 PM, Trashman0430 wrote:

    I also bought TTS on the strength of a Motley Fool recommendation. Most of us don't complain when we have 200%, 300% and 400% gains. As this thing has not played out yet I think I will keep my powder dry for now. No further comment.

  • Report this Comment On November 14, 2013, at 8:24 PM, QTXUSA wrote:

    These claims by Gotham are very serious. Fraud can be very hard to detect so don't go too hard on MF, yet. Let's see what shakes out. However, if even a portion of what Gotham says is true, this stock will be years recovering, if ever.

    I'm sure everybody else gets the " 251% gain ! " advertisements from MF. I just wish they'd for once include one of their bloopers in their pitches. Ya know, truth in advertising. Maybe things like today's TTS meltdown wouldn't come as such as surprise to many Fools.

  • Report this Comment On November 14, 2013, at 10:21 PM, mrshep wrote:

    I pay for advice ----- appears I got bad advice here. Maybe I AM a FOOL.

  • Report this Comment On November 15, 2013, at 12:38 AM, Mega wrote:

    I was looking for the TTS slideshow from a few months ago (which I dissed for completely ignoring valuation) and ran across this gem:

    http://www.fool.com/investing/general/2013/06/13/the-3-ceos-...

    David Meier says he trusts Bob Rucker more than any other CEO. Ha.

  • Report this Comment On November 15, 2013, at 4:51 AM, JJHofst wrote:

    Angry to say the least that only after the stock gets smashed do MF analysts now question reported margins. What the...

  • Report this Comment On November 15, 2013, at 7:44 AM, TMFBWItime wrote:

    Thank you all for your comments and for participating in the discussion on Fool.com

    I'd like to clarify what some people are indicating is different positions on their services vs. what they read on Fool.com.

    The Motley Fool runs a gamut of newsletters with exceptional analysts whom I deeply respect.

    Bryan, in the video above, is one of those analysts. Bryan does not work on Rule Breakers, Supernova, or Million Dollar Portfolio, all services that have coverage on TTS. With so many great investors under one roof, we don't always align on every idea, and frankly we wouldn't want to. That's why we have so many services available for investors to pick the style and approach that fit them best.

    Please note that Mark and Bryan are providing perspective on a big news item for the day for interested readers on Fool.com, not making explicit buy or sell recommendations.

    If you are a subscriber in a service that covers TTS, please look to your advisor for how they suggest how to react to this news.

    Ultimately The Motley Fool welcomes every investing perspective we get. Bear, Bull, and Neutral angles help all of us become more educated about our holdings and ultimately invest better.

    -Austin Smith

    Editor, Fool.com

  • Report this Comment On November 15, 2013, at 11:56 AM, robsy5111 wrote:

    I agree with the comments above in that I feel blind-sighted. The video above highlights the red flags. Having just bought the stock 3 weeks ago, those red flags should have at least been a edit to MF's recommendations of TTS

  • Report this Comment On November 15, 2013, at 12:39 PM, 5092 wrote:

    Your report comes across soo phony, makes me throw up. Where we're you day before yesterday, now saying that the profit margins were questionable.

    This is a down day for motly fools

  • Report this Comment On November 15, 2013, at 2:58 PM, synbat wrote:

    I have read these comments. All I can say is that if you cannot take a 40% hit on one stock in your portfolio maybe you should rethink your own long-term goals and investing strategies. Especially when it comes to temperament. I believe the Motley fool has some excellent services offered which I use. Are they always right? No. There are a lot of risk. And there are some real bad days along the path of a long timeline.

    Fool on,

  • Report this Comment On November 15, 2013, at 3:09 PM, Trashman0430 wrote:

    Dave who in the above mentioned video expresses him positive views regarding the CEO of TTS, just in case you all missed it, owns shares of TTS also. He likely lost just as we have. Lets not get emotional and start pointing fingers. The potential outcome of this is unknown. Don't panic yet. It's embarrassing to have to eat your words later. I know I've been there.

  • Report this Comment On November 15, 2013, at 4:21 PM, Trashman0430 wrote:

    TTS is up 12% at close today. Don't know what it means but maybe someone knows something.

  • Report this Comment On November 16, 2013, at 1:41 PM, bobbyk1 wrote:

    Its allways troubling to take a hit like that but a well managed portfolio should withstand the loss.Just signed up for the Canadian newsletter.

  • Report this Comment On November 16, 2013, at 2:22 PM, GoalKeeper7 wrote:

    We see the Entitlement Syndrome is alive and well here. Some folks pay their paltry annual MF $subscription and feel entitled to Wall Street five-star investment analytics. Many of these same types likely buy a Toyota Yaris and have expectations of Lexus performance. Grow up and take responsibility for yourselves. Above average return means above average risk.

  • Report this Comment On November 18, 2013, at 2:03 PM, olitalia wrote:

    My issue is not with the stock price--I think the Gotham article is an attempt to manipulate the market and that the drop is temporary. What I find incredibly arrogant is the guy in the video saying that he saw this coming. Does he believe this anonymous crap article from Gotham more than he believes the careful analysis of fellow Fools such as David Gardner (who also owns TTS)? The fact that he finds such humor in this painful situation for MF subscribers and analysts is extremely odd--at least to me.

  • Report this Comment On November 20, 2013, at 9:27 PM, Mega wrote:

    synbat wrote:

    "I have read these comments. All I can say is that if you cannot take a 40% hit on one stock in your portfolio maybe you should rethink your own long-term goals and investing strategies."

    And if you do take a 40% hit on one stock, maybe you should rethink your investing strategy.

    I didn't have a clue about the accounting/self dealing shenanigans or ethical lapses, but TTS was still extremely avoidable.

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