Tupperware, the well-known maker of food storage containers, has seen its stock soar in recent weeks despite warning earlier in the year its fate may soon be sealed.
In April, the 77-year-old firm said it was in danger of going out of business if it could not raise new financing, being weighed down by a US$705 million debt burden and slumping sales. The news sent its stock down by nearly 50 per cent shortly afterward.
Four months later, Tupperware’s stock is suddenly on the up – rising as much as 700 per cent over the past several trading sessions, having analysts searching for answers as to why.
“What’s going on in the stock market with Tupperware is very different from what’s happening from Tupperware’s business fundamentals,” said Stephen Foerster, a finance professor at Western University’s Ivey Business School.
Tupperware stock down until recently
Tupperware earned a reputation in the 1950s and 1960s as an innovator of kitchen solutions, when it introduced its plastic, air-tight food containers and began marketing them through “Tupperware parties” directly in consumers’ homes.
But in the current economy, the company has faced challenges.
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“It’s a company that’s been around for 77 years. We all know it through its plastic storage containers … but it’s really struggled more recently to attract younger customers, to differentiate, to really capitalize on e-commerce,” Foerster said.
In an effort to modernize its business model, Tupperware struck a deal last year with U.S. retail chain Target to sell products in their stores, but on April 7 it released a regulatory filing that reported there is “substantial doubt” about the company’s ability to continue to operate.
Tupperware warned it would not have enough capital to continue operations if it didn’t secure a new source of money. The company has been working with financial advisors to reorganize and stay afloat.
Tupperware’s stock tumbled after the news broke and continued to drop, reaching a low of 61 U.S. cents per share on July 19 before soaring in the following weeks to a high of US$5.91 per share on Aug. 1.
“This has all the hallmarks of a classic meme stock,” Foerster said.
Meme stocks have ‘tremendous volatility’
Analysts have likened Tupperware’s surge to stellar and often-viral rallies seen in shares of other struggling companies, including home goods seller Bed Bath & Beyond, nail polish maker Revlon and car rental company Hertz Corp.
Lately, those trends have been dubbed “meme stocks” by investors.
The original and most famous meme stock rallies involved retailer GameStop and movie theatre chain AMC Entertainment.
Their unexpected stock gains were exacerbated by a “short squeeze” on professional investors who had bet that the battered shares would fall further. The sharp gains were attributed mostly to individual traders posting on social media sites.
Now, Tupperware is among the top five most active equities on Stocktwits, a website popular with retail investors. As of publication time mid-day Thursday, Tupperware was trading at US$3.96 per share on the New York Stock Exchange.
“I think people always want to buy the stock that is going to be the one that explodes to the upside,” JJ Kinahan, chief executive at IG North America, told Reuters Tuesday.
“Another aspect is that these are often companies with products people know and so that also leads to a certain attraction. The last reason I believe is the large percentage of short interest in these companies.”
Everyday investors looking into stocks like Tupperware must know they carry a “tremendous risk,” Foerster said.
“Whether you want to try to get in on the action or whether you feel this is an opportunity to sell the stock short because it is apparently overvalued relative to its fundamentals, in both those cases there is tremendous risk … because there’s so much volatility,” he said.
“Anything could happen on any given day.”
— with files from Global News’ Kathryn Mannie and Reuters
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