Since July, shares of food storage company Tupperware (NYSE:TUP) have soared more than 500%. It has been one of the hottest stocks to buy of late and it recently crossed over its 200-day moving average.
Investors have been bullish on the stock as there is hope its business could be in much better shape moving forward. The company recently announced that it has finalized an agreement with lenders so that it can restructure its debt. It was just a few months earlier, in April, that it raised going concern issues and doubts about its ability to pay its bills and meet obligations.
The company has struggled with profitability, incurring a loss of $14.2 million last year despite generating revenue of more than $1.3 billion. While its operating expenses have come down in recent years, they still account for a sizeable 57% of revenue, making it hard for Tupperware to stay out of the red. The company has also struggled with generating positive cash flow, burning through more than $53 million in 2022.
Trading at less than 0.2 times its sales, the stock is undoubtedly looking cheap. The danger is that while restructuring its debt will give the company more runway and financial flexibility, it doesn’t change its viability as an investment.
Tupperware has effectively become a meme stock and as such, it can be extremely volatile. While investors who have bought into the rally may be up big, the stock could just as quickly crash should its results not improve. Short interest remains high at 27% of the available float.
Buying shares of Tupperware could send you on a roller-coaster ride and if you’re not prepared for that, you’re better off avoiding the stock.
