I'm Buying More of This High-Growth Stock

I'm Buying More of This High-Growth Stock

It's been something of a roller coaster owning Tile Shop stock over the last year. But that was to be expected, given the high-growth nature of the retailer. The stock got hit really hard recently after the company's earnings report and a manipulative article on its allegedly contaminated products. If we look several years out, the potential for this company is great. That's why my Special Situations portfolio is taking advantage of the recent price weakness to add more money to the stock.

Recent results
The recent news from Tile Shop has been remarkably good. In the third quarter, sales were up 28%, with same-store sales climbing a remarkable 14.8%. That's almost unheard of. In addition to the strong performance at the shop level, the company continues to build out its store network rapidly. For the year, Tile Shop plans on opening 20 new stores on its 2012 year-end base of 68 -- unit growth of more than 29%. So sales should continue growing briskly next year. And the economics of each store are phenomenal, with a payback on investment in two-and-a-half years.

This is my third purchase of Tile Shop, following my first acquisition last December. You can read the original article here, including the initial reasons why I liked the company. But here's the summary: The company has excellent unit economics and a long runway for growth. In addition, it's benefiting from a cyclical increase in home purchases. As long as same-store sales continue to hold up, I'm very comfortable owning this position. Looking out five to 10 years, it's hard not to see this stock being a multibagger.

Because it's a high-growth stock, Tile Shop is particularly susceptible to the vicissitudes of the market. If the market goes down 10%, Tile Shop might go down 20%. That's just how things work with these types of stocks. That's fine, because I would simply add more to the position. At $15 or $16, I would add significantly to this position, despite the fact that it would be my fourth purchase of the stock.

Great long-term potential
So for now I'm adding $1,000 to the stock and continuing to watch closely. Of all the stocks in my Special Situations portfolio, Tile Shop has the greatest potential for long-term return.

Interested in Tile Shop or have another stock to share? Join me on my discussion board or follow me on Twitter (@TMFRoyal).

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The article I'm Buying More of This High-Growth Stock originally appeared on Fool.com.

Jim Royal owns shares in Tile Shop. The Motley Fool recommends Tile Shop Holdings. The Motley Fool owns shares of Tile Shop Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published