Value Line has initiated coverage of Tile Shop Holdings, Inc. (TTS) in its flagship product, The Value Line Investment Survey. The company is a specialty retailer of manufactured and natural stone tiles, setting and maintenance materials, and related accessories in the United States. It offers a wide selection of products, at competitive price levels, while providing customer service in an extensive showroom setting. Presently, the business retails over 4,500 products from around the world, including ceramic, porcelain, glass, and stainless steel manufactured tiles and, marble, granite, quartz, sandstone, travertine, slate, and onyx natural tiles, primarily under its proprietary Rush River and Fired Earth brands. Moreover, Tile Shop makes it a point to buy tile goods and accessories directly from producers, which aids in cost efficiency and quality control. Too, TTS manufactures its own setting and maintenance materials, such as thin set grout and sealers under the Superior brand name. Lastly, the company currently operates 70 stores in 22 states, with an average size of 23,000 square feet per location, while also selling items on its website.

The retail tile market is highly-fragmented. Therefore, Tile Shop competes directly with large national home centers that offer a wide range of home improvement products in addition to tile, such as The Home Depot (HD - Free Home Depot Stock Report) and Lowe’s (LOW); regional and local specialty retailers of tile, including Tile America, World of Tile, Century Tile, Floor and Décor; factory-direct stores like Dal-Tile and Florida Tile, as well as a large number of privately-owned, single-site stores. In addition, it squares off indirectly with businesses that offer other types of floor coverings, namely wood floors, carpet, and vinyl sheets. The barriers to entry for the retail tile industry are relatively low, and new or existing tile retailers could enter Tile Shop’s markets and increase competition fairly easily. Furthermore, it is important to note that many of its competitors enjoy advantages over TTS, most notably wider name recognition, longer operating histories, and greater financial, technical, and other resources.

That said, the company believes it can compete with respect to each of these factors by providing an extensive product portfolio with attractive prices, as well as convenient retail store locations with solid customer service and on-site instructional guidance. What’s more, while some larger factory-direct entities manufacture their own products, most of its peers purchase their tile from domestic manufacturers or distributors when they receive an order from a customer. Thus, it takes these retailers longer than TTS to deliver goods to customers and their prices tend to be higher.

This stock has been surging upward of late. Indeed, following an initial public offering in November of 2010, the issue began trading on the NASDAQ Exchange in August of 2012. Since then, these shares have jumped more than 120%, compared to just a 20% advance in the S&P 500 Index.

All told, the ongoing housing market recovery augurs well for this company, as it ought to strengthen demand for its offerings. Too, a healthier economy should allow Tile Shop to open additional store fronts and invest in a wider array of products and services.

All in all, subscribers interested in this specialty retailer of manufactured and stone tiles are advised to consult Value Line’s quarterly reports for Tile Shop Holdings, Inc. as well as any supplemental reports and relevant articles as important news items arise.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.