Tile Shop Cracks, and I'm Buying

Recent earnings revisions have hit the stock, but it still makes a good buy

Jul 10, 2014 at 7:15PM

My Special Situations portfolio has been a frequent buyer of Tile Shop (NASDAQ:TTS) as the stock has fallen, and I'm back today to buy more. Poor results from peer companies have analysts falling all over themselves to downgrade house-related stocks like Tile Shop. So I think today makes an excellent opportunity to add to my stake in this fast-growing retailer.

A quick look at the numbers
Tile Shop is a fast-growing retailer, and the market tends to price these beasts at a high earnings multiple. So when actual results underperform investors' expectations, these belles of the ball can get severely punished. And that's what we've seen at Tile Shop recently. So here's what one analyst expects.

Credit Suisse lowered its 2014 earnings forecast from $0.40 a share to $0.37 -- lowered expectations of 7.5%. Investors frothed at the mouth, and shares plummeted. The analyst also lowered 2015 targets a similar amount, from $0.54 to $0.51. So wait a second. The analyst is still expecting 37% annual earnings growth from 2014 to 2015. And in an ironic twist (and numbers game), earnings growth is actually expected to be higher now than before the downward earnings revision. (Run the numbers yourself.)

But you can hardly blame the analyst for investors' knee-jerk reaction.

Let's recall that Tile Shop is quickly growing out its store count, and this is not just a one-year exercise, but rather a process over the next decade. And insiders have purchased earlier this year at prices substantially higher than today's. I'll be looking for more insider purchases at these reduced prices.

Foolish bottom line
So tomorrow my Special Situations portfolio will buy $500 in Tile Shop stock. I expect it to outperform over the coming years, and reduced expectations are a great way to take advantage of Mr.Market's fickle moods. For more great stocks, follow me on Twitter: @TMFRoyal. And check out my dedicated discussion board.

Consumers will be floored by Apple's next smart device
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Jim Royal owns shares of Tile Shop Holdings. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information

Compare Brokers