Iconic home products line producer Tupperware (NYSE:TUP) is witnessing its share price skyrocket on Monday on no company-specific news. It’s likely, then, that the return of the meme-trading phenomenon has catapulted sentiment for otherwise troubled entities. Nevertheless, prospective investors should exercise extreme caution as TUP stock remains wildly speculative.
In afternoon trading, Tupperware shares have been trading hands at around the $1.82 level, representing a nearly 42% lift. Still, the positive move does little to address the business’s fundamental concerns. Earlier this year, management warned that it lacked confidence about its ability to continue as a going concern.
However, such a framework originally started the meme-trading phenomenon, and its resurgence may have catalyzed TUP stock. Other popular securities that kicked off one of the hottest trends of 2021 also soared.
On Sunday, speculation about Keith Gill, aka “Roaring Kitty’s” potential return to social media set the market ablaze. Gill’s account published a post on X showing a man leaning forward, possibly holding a video game controller. Netizens interpreted the image and subsequent messages as indicating that the retail trader responsible for the meme-stock phenomenon is back in action.
Still, it’s a dangerous game to play.
TUP Stock Rises Despite Worrying Fundamentals
On paper, the mechanism behind TUP stock carries a rational basis. Presently, the short interest of Tupperware stands at 23.2% of its float. Generally, a metric of above 20% indicates an extremely high reading, which ordinarily signals a bearish outcome. Plus, the short ratio — or the time needed to unwind these bearish bets — clocks in at 11.19 days to cover.
However, the rub of a direct short position is that a speculator must first borrow securities in order to initiate the position. Subsequently, the trader immediately sells the securities, hoping to pick shares back up when they’re cheapened. Then, the trader can return the borrowed securities back to the broker, fulfilling the underlying contractual obligation. The rest of the funds (minus fees and other costs) is profit.
Of course, the short position only works well if the target security declines in value. If it rises, the contractual obligation essentially calls for the return of equity at a higher value than the original transaction price. In this case, the more that TUP stock rises, the more damage it causes to short speculators.
However, as the long-term charts for meme stocks demonstrate, the fundamentals eventually win. For Tupperware, rising costs, distressed financials and a failure to submit required corporate filings on time raise major red flags.
Why It Matters
Psychologically, the concept of “saving” distressed enterprises gives the meme-trading phenomenon some moral clout.
However, 2021’s aggressive support for private prisons raises skepticism about this directive. Further, one of the main points about short trading is to basically put moribund companies out of their misery so that they don’t suck in good capital into bad businesses. Again, the long-term charts demonstrate that, eventually, the fundamentals matter.
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On the date of publication, Josh Enomoto did not have (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.
