Tile Shop Drops as Much as 30% After Short Seller Issues Report

November 15, 2013 Leave a comment

Tile Shop Drops as Much as 30% After Short Seller Issues Report

Tile Shop Holdings Inc. (TTS) shares plunged after short-seller Gotham City Research LLC said the home-improvement company used improper accounting to inflate earnings. Tile Shop lost 28 percent to $15.22 at 12:07 p.m. in New York after falling as much as 30 percent, the most ever. Shares of the Plymouth, Minnesota-based company are worth as little as $1.54, a 93 percent decline from yesterday’s close, according to the report from Gotham City posted on its website today.Tile Shop exerts control on its suppliers, which sell goods to the company at or near cost, helping it increase profit margins, the report from Gotham City said. Two phone calls and an e-mail to Tile Shop’s investor relations office seeking comment on the report weren’t immediately returned.

Research firms, such as Gotham City and Muddy Waters LLC, have targeted companies with Chinese operations to profit from accounting investigations that claim to uncover fraud. The companies and their clients borrow shares and sell them with the aim at buying the stock back at a lower price and pocketing the difference. Gotham City said in the report that it will make money from a retreat in Tile Shop.

Short sellers increased bets against Tile Shop to a record high of 13 percent of shares outstanding on Nov. 12. Bearish wagers on the stock rose from a low of 0.1 percent in June, according to data compiled by Markit, a London-based research firm. The average short interest for a company in the Russell 2000 Index is 4 percent.

To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Matthew Kanterman in New York at mkanterman2@bloomberg.net

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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