Tuesday Morning (TUESQ) – Closing Short Position – down 91% vs. S&P up 83%

We put Tuesday Morning (TUESQ: $1.40/share) in the Danger Zone on March 17, 2014. At the time, TUESQ received an Unattractive rating. Our short thesis noted the firm’s deteriorating return on invested capital (ROIC), lagging profitability in a tough market, questionable corporate strategy, and overvalued stock price.

This report, along with all of our research[1], utilizes our superior data[2] to get the truth about earnings, as shown in the Harvard Business School and MIT Sloan paper, “Core Earnings: New Data and Evidence.”

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During the six-and-a-half-year holding period, TUESQ outperformed as a short position, falling 91% compared to an 83% gain for the S&P 500.

Since then, the firm’s fundamentals have deteriorated and culminated in a bankruptcy filing in May 2020. Tuesday Morning recently announced a plan to sell all assets, rather than pursue a traditional bankruptcy reorganization, and shares have jumped higher. Given the uncertain nature of the bankruptcy proceedings, we believe investors should take the gains and close this short position. 

Figure 1: TUESQ vs. S&P 500 – Price Return – Successful Short Call

Sources: New Constructs, LLC and company filings

Note: Gain/Decline performance analysis excludes transaction costs and dividends.

This article originally published on October 6, 2020.

Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.

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[1] Harvard Business School features the powerful impact of our research automation technology in the case New Constructs: Disrupting Fundamental Analysis with Robo-Analysts.

[2] Our core earnings are a superior measure of profits, as demonstrated in Core Earnings: New Data & Evidence a paper by professors at Harvard Business School (HBS) & MIT Sloan. The paper empirically shows that our data is superior to “Operating Income After Depreciation” and “Income Before Special Items” from Compustat, owned by S&P Global (SPGI).

Click here to download a PDF of this report.

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