Why Tile Shop Hldgs, Inc. Shares Bounced Back

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Tile Shop Hldgs, Inc.  were bouncing back today, up as much as 12% as the home decor retailer continued to recover from a fraud accusation by a short-seller last week.

So what: Last Thursday, Gotham City Research, a fledgling "special-situations" investing firm, accused Tile Shop of dramatically inflating its earnings, saying it used a bogus supplier to manipulate inventory. It also said that Tile Shop would be forced to restate years' worth of financial statements and that its actual share value was closer to $3, laying out its argument in a 58-page screed. Tile Shop denied all allegations, and on Friday morning a number of larger financial firms, including Credit Suisse and Piper Jaffray, came to the defense of the retailer, saying Gotham City had misunderstood the retailer's supply chain and that the sell-off created a buying opportunity.

Now what: There haven't really been any new developments since shares began recovering Friday morning on the statements from Piper Jaffray and Credit Suisse. Not surprisingly, there were a handful of class action lawsuits announced, alleging possible violation of federal securities laws. It's typical to see such class action suits filed after a dramatic fall in share price. The stock is still down more about 25% from before Gotham City published its report, but the gradual recovery seems to speak to investor confidence, or at least that some see it as a buying opportunity. One thing is clear -- this story is far from over. To stay connected, just add Tile Shop to your Watchlist here.

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The article Why Tile Shop Hldgs, Inc. Shares Bounced Back originally appeared on Fool.com.

Fool contributor Jeremy Bowman has no position in any stocks mentioned. 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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