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TCS Stock: A Cautionary IPO Tale

A narrow revenue miss has sent TCS stock plunging


When The Container Store Group (TCS) went public in late October, investors piled in. On its first day of trading, TCS stock soared 101.1% and then went on to add another 50%. But it looks like investors got too carried away — TCS stock is off by about 13% today.

The Container Store stock TCSThere are some important lessons here for investors.

Mainly, it’s important to always keep an old rule in mind: A newly public company must not miss its expectations on its first earnings report. A miss shows that the company doesn’t have much finesse with the Street.

TCS broke that rule. The company fell just short on revenues, bringing in $188.3 million, compared to expectations of $189 million. The company reported a fiscal third-quarter loss of $9.5 million or $1.39 per share. Although, after excluding one-time items, there was an adjusted profit of 11 cents per share.

TCS also disappointed investors with its full-year expectations. The company expects revenues to hit $754 for the full-year, but the consensus from analysts’ was for $756 million.

True, the company didn’t miss by much … but when an IPO hits the market as hot as TCS did, it needs to beat its numbers. If not, the results are often brutal, as TCS stock is proving. So count this as another important IPO lesson.

The bottom line: For a red-hot deal like TCS, there is often money to be made within a few months after its IPO. The momentum is likely to continue as traders look for quick gains. But there are huge risks when the first earnings report is announced. Again, even a slight miss can wreak havoc on a stock.

No doubt, this could be an issue for other hot deals, especially Twitter (TWTR), which has had a huge run. TWTR expects to publish its first quarterly report on Feb. 5. If the company doesn’t beat expectations … we could be looking at another bloodbath.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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