TTSH

Tile Shop Holdings ($TTSH) Major Shareholder Accumulates Over $100 Million Despite Deteriorating Earnings - What Does The Insider Know?

04/03/2025 21:14

Tile Shop Holdings ($TTSH) has seen its major shareholder consistently increasing its stake over the past 10 months, with substantial purchases continuing from late 2024 into early 2025. What makes these purchases particularly intriguing is that they've persisted even as the company's quarterly performance has deteriorated, drawing increased investor attention. The protagonist behind this buying spree since June 2024 is Fund 1 Investments, LLC, a major shareholder fund. Jonathan Lennon serves as the managing member of this fund, which has been purchasing shares for investment vehicles advised by Pleasant Lake Partners LLC. The fund has displayed a remarkably consistent pattern, buying shares almost daily or weekly since early June 2024. The scale and consistency of these purchases are noteworthy. On December 13, 2024, the fund acquired 512,670 shares (worth approximately $3.52 million) in a single day, and added another 455,710 shares (about $3.07 million) on December 18. Purchase prices have ranged from $5.93 to $7.69, which is similar to or slightly above current price levels. These substantial acquisitions have occurred amid deteriorating quarterly results, making them all the more interesting. Tile Shop Holdings reported a net income of $1.19 million in Q2 2024, which plummeted to just $41,000 in Q3, before recording a net loss of $628,000 in Q4. This decline coincided with a 5.8% decrease in comparable store sales in the fourth quarter. Despite these results, Fund 1 Investments has continued to buy shares steadily even after earnings announcements. The fund continued purchasing in January and February 2025 when the stock price rose above $7.50, and also took advantage of the buying opportunity when prices dropped sharply in early March. When the share price fell to $5.95 on March 13, the fund added another 19,500 shares. Tile Shop Holdings is a specialty retailer of tiles and related products for residential and commercial buildings, operating 143 stores across the United States. The company's financial position remains relatively stable. It carries no long-term debt and held approximately $21 million in cash and cash equivalents as of the end of 2024. Additionally, its gross margin has remained high at 64-66%, indicating a solid foundation for profitability. However, with total revenue of $347 million and net income of just $2.32 million (a profit margin of 0.67%), the current P/E ratio stands at 26.78, which is somewhat high. This suggests a premium is being placed on the company's future growth potential rather than its current performance. Tile Shop Holdings' performance is closely tied to the housing and remodeling markets, which are influenced by U.S. housing market trends and interest rate policies. Recent expectations of Federal Reserve rate cuts have sparked optimism about a potential housing market recovery, which could be a positive factor for Tile Shop Holdings. Industry experts note that "the major shareholder's persistent buying signals strong confidence in the company's long-term value." Particularly, the steady increase in ownership despite poor short-term performance suggests a belief that the current market price is below the company's intrinsic value. However, investors should consider several risk factors. First, despite the high gross margin, the very low net profit margin indicates high operating expenses, which remains a challenge for profitability improvement. Second, declining comparable store sales could signal growth stagnation, which may continue to affect future performance. Finally, it's important to remember that major shareholder purchases don't necessarily translate to short-term stock price increases. Fund 1 Investments appears to be buying with a long-term perspective, which may create a temporal mismatch for short-term investors. Moving forward, investors should monitor Tile Shop Holdings' next quarterly results, comparable store sales trends, and the pace of recovery in the U.S. housing market. Whether the major shareholder maintains its buying pattern will also serve as an important indicator.

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