Monday Losers: This Discount Retailer is Starting to Look Pricey

Retailers of all stripes have fallen back into favor among investors, and many of them have risen +300% or +400% in the last year. The profit outlook is surely brightening for the group, but consumers still remain quite stressed, so these stocks may be getting ahead of themselves.

That’s just what happened with discount homegoods retailer Tuesday Morning (Nasdaq: TUES), which slumped more than -10% on Monday after reporting tepid fiscal third-quarter results. The stock had risen more than +300% since early December, but management cooled investors’ ardor by noting that full-year profits may struggle to meet the consensus forecast. And shares now look pretty pricey at more than 30 times the high end of management’s guided profit range. Despite Monday’s slump, investors should probably stay away from shares of Tuesday Morning this Tuesday morning.

In light of the strong market rally, investors may also be on guard against companies rushing to issue new stock. Michigan-based Capitol Bancorp (NYSE: CBC) took advantage of recent sharp gains in its stock to raise funds. And investors quickly voted with their feet against that dilutive move by pushing shares down nearly -20% in Monday trading. If you own stocks with fairly weak balance sheets, you should also be prepared for dilutive capital-raising efforts. Give a close listen to management commentary on the current quarterly conference call to glean assurances that such stock-sapping moves aren’t planned for your investment.

Many small banks had a tough go of it in Monday trading. For example, shares of PrivateBancorp (Nasdaq: PVTB) fell by nearly -15% after the Chicago-based lender announced a stubbornly high loan-loss rate for its first quarter. The bank stunned investors six months ago when it announced a sharp increase in delinquent rates. Since then, the bank had spoken of an improving climate for loans, pushing share prices back up. But that proved to be a false dawn, as this morning’s announcement shows.

Sector laggards also include Pacific Capital Bancorp (Nasdaq: PCBC), Cadence Financial (Nasdaq: CADE) and First Midwest Bancorp (Nasdaq: FMBI). Even as bank stocks move up off of their lows from 2009, they can still be quite volatile as the economy sputters back to life. Any bank reporting stubbornly-high loan delinquencies is not likely to see a rapid improvement in the quality of their loans. Lesson for investors: Caveat emptor.