Tupperware Brands (NYSE:TUP) fell 21% overnight after a short squeeze sent the nearly-bankrupt company’s stock up 550% in a month.
Tupperware warned investors in April it could cease to be a going concern. The company failed to file its 10-K report on time, violating lending covenants.
TUP stock was trading at $4.35 per share early on Aug. 2, a market cap of about $200 million. Its pandemic-era peak was at over $33 per share in late 2020.
Tupperware Broke
Tupperware was a big deal in the years after World War II. Its plastic containers were perfect for storing food overnight in the era’s new, larger refrigerators. Saleswomen held “Tupperware Parties” in homes to hawk it.
But many food products now come in sealed containers that work like Tupperware. Vacuum sealers proved better for long-term food storage, and sous vide devices increased their convenience.
Reporters like Herb Greenberg have been warning about Tupperware for over a year. After its brief pandemic run, the business model was broken, he said. Small investors, meanwhile, were comparing Tupperware to Hertz Global (NYSE:HTZ), which found life after bankruptcy. Greenberg called those comparisons nuts.
But failure brings short sellers, and short sellers now attract “meme” investors anxious to squeeze those shorts by buying stock. In the short run this can work, and it worked at Tupperware.
The cost to borrow shares rose to 75% of their value, as retail investors bought it with both hands.
On Stocktwits, meme investors were still encouraging the squeeze on Aug. 2, claiming shorts had not yet covered. The problem is that social media posters don’t have to be telling you the truth, and don’t have to be in the stocks they tout.
TUP Stock: What Happens Next?
If you’re going to play this game, you must be ready to sell. The only way to win is to watch every trade and get out with your profit before things turn. Buying meme stock short squeezes is a form of gambling.
Don’t play with money you can’t afford to lose and keep your eyes on the table.
As of this writing, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
