By Parke Shall
Things have just changed very significantly and very drastically for Lumber Liquidators (NYSE:LL).
We wrote an article just days ago on Lumber Liquidators and suggested that the company may be too high priced for those looking to get in for a long position. Our advice was based on the CDC coming out earlier this month and saying there was little to no additional cancer risk with the company's products, which would seemingly have people to believe that the company's formaldehyde issue would probably be a non-event in terms of being a contingent liability for the company.
We also based this decision (that it would be OK to buy closer to $10 or $12) on the expectation of the company staying out of the negative news cycle. We suggested that people wait for the stock price to move lower before entering into a long position, a piece of advice that we are going to reverse today and amend by saying that it is now time to avoid the company altogether.
In a stunning piece of news, the CDC on Sunday night released findings, as reported by Bloomberg, that there is three times more cancer risk using LL's products than other products. An article that broke Sunday night said,
Lumber Liquidators Holdings Inc. flooring, tested for formaldehyde, was found to have a three times higher risk of causing cancer than previously stated, U.S. regulators said in reversing their own finding from earlier this month.
A report released Feb. 10 used incorrect ceiling heights, lowering by about three times the airborne concentration that should have been examined and reducing the danger, the U.S. Centers for Disease Control and Prevention said in a statement on its website. The estimated risk of tumors is six cases to 30 cases per 100,000 people, the CDC said, above the two to nine cases in the earlier report.
The earlier report sent the company's stock 2.6 percent higher. The shares had plummeted more than 70 percent since the March airing of a "60 Minutes" story that alleged Lumber Liquidators flooring had potentially dangerous levels of formaldehyde.
This can only be described as a blockbuster reversal and terrible news for the company both on the public relations front and the business front. This will put the company back into the negative news cycle, perhaps even worse than before when these allegations were first leveled, and this is going to mean extremely tough times ahead for the company, we believe.
We are no longer confident that the company is going to be able to put negative press behind it this year and get to a point where they can continue to grow. We also now believe that, despite the company's innocuous settlement of it's Lacey Act violations, that the CARB compliance issue is going to harbor serious penalties that could be devastating for shareholders.
At this point, we believe there is absolutely no reason to be long stock, and we would avoid the company altogether.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.