We came across a bullish thesis on The Container Store Group, Inc. (NYSE:TCS) on Substack by Unemployed Value Degen. We will be summarizing Value Degen’s thesis on TCS. The Container Store Group, Inc.’s shares are trading at $12 as of Oct 16th.
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The Container Store (NYSE:TCS) is a specialty retailer focused on storage and organization solutions. The company has recently drawn attention due to an 18% stake acquisition by investor Amit Agarwal. This has led to a lot of volatility in the stock’s price. The Container Store’s revenue is largely affected by cyclical factors, with temporary headwinds in consumer durables impacting the business.
TCS management enacted a poison pill measure to prevent potential activist strategies. However, it was later revealed that Agarwal–who is a former patent attorney–is not really an activist investor. It is more likely that he simply believes TCS stock is undervalued. This view is supported by the continued investment of Leonard Green & Partners. That firm owns a 30% stake in TCS. Another firm called Glendon Capital holds a 9.2% stake here.
The main base case against the company is due to the significant amount of debt on its balance sheet. This is primarily because of lease obligations on its retail locations. In fact, the credit rating here is CCC+. However, JPMorgan recently extended a revolving credit facility to TCS at a favorable rate. The market has since regained confidence in The Container Store’s ability to refinance a term loan due in 2026 if necessary.
The Container Store’s debt is actually pretty manageable as long as it remains a going concern. We would like to again point out that most of its debt is related to leases on its retail locations.
The stock has been on an uptrend since the post and has a market capitalization of just $41 million. It wouldn’t take much for the stock to deliver significant gains from here.
On paper, this may still look like a horrible investment. Trailing-twelve-month net losses sit at $106 million. If you dig a little deeper though, it becomes those loss figures start to look a lot more healthy. As Unemployed Value Degen pointed out on his substack, “If you look past the $101 million goodwill writedown, trade name impairment, and other unusual items in the last twelve months, from a cash perspective, TCS is still a melting ice cube, but melting very very slowly.”
Management’s decision to invest in store openings rather than aggressively paying down debt may yield higher long-term returns once cyclical headwinds dissipate. That’s mostly what the bulls are betting on here.
Moreover, potential improvements in the housing market could bolster the custom closet segment as mortgage rates stabilize and homebuyer expectations adjust. If TCS can maintain even modest revenue growth and manage its debt, a return to a 1.0x price-to-sales ratio on a $1 billion revenue run rate could turn the stock into a multibagger.
The Container Store Group, Inc. is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 6 hedge fund portfolios held TCS at the end of the second quarter which was 6 in the previous quarter. While we acknowledge the risk and potential of TCS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TCS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.