What: Shares of Container Store Group Inc. (NYSE:TCS) were losing control on Tuesday, finishing the session down 10.4% as the stock sank gradually over the course of the day. There was no news pushing shares downward, and trading volume was less than normal, indicating this was not a news-driven movement.
Instead, the stock seemed to be pulling back after a 20% gain over the three previous sessions, which also seemed driven purely by momentum. Tuesday's drop also came as the S&P 500 fell 1.1%, as the broad market index tends to have an exaggerated effect on volatile stocks such as The Container Store.
So what: It's easy to want to dismiss Tuesday's movement as irrelevant, but the pullback seems to cap an end to a bull run in the stock that began on Feb. 11, as the S&P 500 bounced off a 22-month low. Container Store stock had been bid up more than 50% until Tuesday's sell-off on an apparent short squeeze as the market became increasingly confident that there would be no recession, and investors plowed into beaten-down plays such as The Container Store, which had fallen more than 90% from its post-IPO peak. As of the end of January, 29% of the stock was sold short
Now what: After the recent recovery, shares of the embattled stock once again seem overvalued, trading at a P/E of 32. The company has done nothing but disappoint the market in its brief history as a publicly traded entity, and its recent performance has provided no basis for the optimism that pushed the stock up.
In its most recent quarter, the organizational retailer posted a per-share loss of $0.05 on expectations of a $0.04 profit, while comparable sales increased just 0.5%. That's not the kind of organic growth that's going to turn a breakeven business profitable.
With headwinds against the general retail sector and The Container Store unable to display any positive catalysts in its recent reports, I see little reason for the stock to move higher unless performance significantly improves. We won't get an update on that until the company reports fourth-quarter earnings at the end of April.
Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends The Container Store Group. 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.