Container Store Group (TCS – Snapshot Report) is down about 50% YTD, but stock performance is not a factor of the Zacks Rank. Earnings estimates are a big factor so let’s take a look at why it is a Zacks Rank #5 (Strong Sell), and it is the Bear of the Day.
The Container Store Group is engaged in the retailing of storage and organization products in the United States. As of March 1, 2014, it operated 63 stores with an average size of approximately 19,000 selling square feet in 22 states and the District of Columbia. The company was founded in 1978 and is headquartered in Coppell, Texas.
The Zacks Rank is based on the revisions of earnings estimates. The stock price has nothing to do with the Zacks Rank. When estimates fall, the Zacks Rank will usually fall as well.
TCS has had a poor earnings history as the company has missed in three of the last four quarters.
The Zacks Consensus Estimate has fallen from $0.64 in April to $0.57 in June and down to $0.50 before the most recent earnings release in October. Seeing as it was the third time in the last six months that the company lowered guidance, the estimates were slashed down to their current level of $0.42.
The Zacks Consensus Estimate for 2015 has seen a similar decrease, moving from a high of $0.82 to a low of $0.60 but recently kicked higher by a penny.
TCS still has some decent growth prospects, despite the company lowering guidance three times in the last six months. The company is expecting 7.5% revenue growth for fiscal 2015 and 11% for fiscal 2016, while the industry average is expected to contract in 2015 by 5.7% and then grow by 4.7% in 2016. That said the 247x trailing PE for TCS show an almost absurd premium to the 20x trailing PE for the industry average. The forward PE, which is more important for a stock like this, shows a healthy premium at 52x compared to 20x for the industry average. Price to book comes in at 5.5x compared to the industry average of 3.3x while price to sales of just 1.4x is below that of the industry average of 2.6x.
The price and consensus chart is a very helpful tool developed by Zacks. It shows how the earnings estimates help guide the stock, so as estimates move higher, the stock price generally follows along. TCS as a Zacks Rank #5 (Strong Sell) is no exception to that idea. Investors would be wise to wait for estimates to turn around and start moving higher before they think about investing in this stock.
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Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.