2023-08-02 08:00:00 ET
Summary
- Tupperware stock price has surged by 139.11% in the past five days and 578.01% in the last month.
- Short interest in Tupperware has more than doubled since earlier this year.
- The recent increase in TUP stock value is based on factors outside of the company's fundamental performance.
Last April, Tupperware Brands Corporation ( TUP ) announced that it was on the brink of bankruptcy due to mounting debt and declining sales. Despite the lack of news about any significant improvements in recent months, the company's stock price has surged by 139.11% in the past five days and 578.01% in the last month. Additionally, short interest has more than doubled since my previous article earlier this year.
As we approach the Q1 2023 earnings release date for the company, investors should exercise caution as the recent increase in stock value is based on factors outside of the company's fundamental performance. The rise in value may be due to the influence of meme stock investors, which could revive the stock. However, given the company's lack of positive news, it may be best to avoid this high-risk stock and take extra care before the earnings release.
TUP stock potential versus company fundamentals
Seventy-six-year-old plastic homeware company Tupperware is all over the news, but not for any action taken by the company itself. After posting its bankruptcy warning in April 2023, there was an initial decline in stock price, followed by a major upward trending rally alongside a significant increase in short interest from 10.89% in January 2023 to 25.14%. In 2020, the stock dropped to similar lows and grew as high as $33.56. However, today's company is fundamentally much weaker than in 2020 and 2021.
Over the past five years, there has been a decline in revenue, gross profit, and net income. Additionally, levered free cash flow is currently negative at $115.4 million TTM, and the debt is gradually increasing. These factors suggest that the company faces significant challenges, including outdated selling channels and a lack of demand. It may be a difficult journey ahead to turn things around.
Annual income statement trend (seekingalpha.com)
The company brought on new management and revealed plans to improve sales and distribution in 2021 by moving away from a direct seller model and adopting a multi-distribution channel approach. However, there have been few positive outcomes so far and the management's performance has not inspired confidence in the company. Despite being a well-established brand, Tupperware is facing stiff competition from similar products, disengagement from younger consumers, and a lack of innovative selling strategies that could drive positive growth for the business.
Tupperware financials and valuation
Although Tupperware is losing revenue, it posts over one billion dollars annually. Revenue for its FY 2022 was at $1.305 billion. However, the company's operating income is much lower due to decreased sales and the high cost of its direct selling sales force strategy. Operating income reduced to $93.5 million in FY 2022.
Annual revenue (seekingalpha.com) Operating income (seekingalpha.com)
We have seen a clear downward trend regarding the company's top and bottom line fundamentals; furthermore, if we take a look at the company's cash flow, which could act as a safety blanket and allow it to improve the business, we are currently looking at a negative levered free cash flow trend. Furthermore, the total cash is $110 million TTM, and if we look at liquidity, it has a current ratio of 1.31, which means it can cover its short-term obligations. However, if we take the more conservative quick ratio, it is 0.31, indicating that the company does not have enough cash right now to cover its short-term liabilities.
Levered free cash flow (seekingalpha.com)
In my previous article, I had mentioned that the short interest in the stock was at 10.89%. However, it has now increased to 25.14%, which suggests that investors are anticipating poor performance in the upcoming period. The company failed to meet the EPS expectations in the last quarter and recorded negative earnings, which is a first in the last twelve quarters.
Over the past month, the stock price has outperformed the S&P 500 thanks to the rally, but this growth is not indicative of any significant financial improvement if we look at a double-digit decline in revenue growth and a negative net income margin of 1.09%. Although the gross profit margin is high relative to some of its competitors, it has declined over the last five years.
Risks
It's important for investors to know that the recent surge in stock price is not necessarily based on the company's performance. Rather, the increase is due to heightened interest from individual investors over the past couple of weeks. However, it's worth noting that short interest has also gone up, which could indicate a potential decline in momentum. Therefore, investing in this particular stock comes with a certain level of risk. While there's a chance of significant short-term gains, there's also an equally likely possibility of substantial losses.
We have seen a high short interest, weak fundamentals, and a high debt intake that the company has to deal with. Management has given mixed messages in the past regarding future results, and although the company is an iconic brand, there is a long uphill battle required for the company's performance to turn around.
Final thoughts
There has been much attention on Tupperware lately, with its stock price rising significantly. However, given the company's weak fundamentals, it's unclear how long this trend will continue. While we don't know when Q1 2023 earnings will be released, they are expected in early August. Unless you're comfortable taking risks, it's probably best to avoid investing in this stock. It's quite speculative, and there's a risk of bankruptcy. Given this, I recommend a wait-and-see approach and suggest holding off on any investment until after the earnings report.
For further details see:
Tupperware Brands Stock: Risky Play Ahead Of Q1 2023 Earnings