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Lumber Liquidators +10% in comeback bid

Mar. 03, 2015 1:20 PM ETLL Flooring Holdings, Inc. (LL)LLBy: Clark Schultz, SA News Editor29 Comments
  • Shares of Lumber Liquidators ((NYSE:LL+9.6%) stage a comeback with several investment firms out with a defense.
  • Janney Capital thinks the company will be exonerated as it notes the lack of "victims" from the transgressions alleged in the 60 Minutes piece.
  • Most traders think today's action is more than just shorts closing their position.
  • Despite the mini-rally, there's no shortage of negative views still floating out there on Lumber Liquidators. Whitney Tilson and SA contributor Orange Peel come to mind.
  • Previous on LL and 60 Minutes

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Comments (29)

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FrankArabia profile picture
how are you guys even getting coverage for your shorts here? I tried multiple times today, my broker has nothing. shame.
dieuwer profile picture
So how about someone shorting AAPL, go on TV and claim iPads contain mercury?? Big bucks instantly?? Is shorting that easy?
almost top ticked my short on LL today at $44 with selling a bear call spread (45/48 credit spread for March). The litigation and head winds are going to take this down along way before any recovery. ..no matter what percentage of the float is short.
Reel Ken profile picture
Hi Fanebrb,

Looks like you took on positions in Sept and Oct 2014, when LL was in the $55-$60 range.

With the 30% haircut you've taken since then you could have bought "made in USA" instead and everyone would have one.

Just because we "like" something ... doesn't make it investable.

p.s. Full disclosure : I "like" and own AAPL.
I like Chinese products and LL. That's why I own it.
Upstate Beerliever profile picture
I wonder if this will play out in a similar manner as the Chinese sheet rock sulfur gas debacle. 600,000 homes in Florida alone were reported to have needed a tear out.

And what will the Jim Rome show now? The popular sports radio/tv voice is known for his adamant promos.
Whitney Tilson shorted the stock and got 60 minutes to do a story on the company that would compromise the stock valuation. He will benefit from his position with the story since he knew in advance it would air.

While I can't really comment on the allegations being true or not, they do seem to be pretty serious on the surface. But if this does not fall into insider trading laws - it should. He had information the market did not and profited from it. Something stinks here and it ain't the flooring.
Reel Ken profile picture
Hi KC,

Sure, Tilson might have had a head start on everybody else.

But, insider trading ... no way. He's NOT an insider. The only "inside" he is ... is inside knowledge of what he knows. Hardly a crime.

If someone wants to do research that others aren't willing or able to do and they benefit by it ... bully for them.

If you want to sanction everyone that uses media to enhance their position, there won't be anyone left on Wall street. For that matter, almost anywhere.
Formaldehyde is naturally produced by the human body. It's in some fruits and vegetables. It's an organic substance. It has been used in vaccines.

The EPA officially lists formaldehyde as a Group B1 "probable carcinogen" (limited evidence, not conclusive). Asbestos is a Group A known carcinogen.

But formaldehyde sure sounds scary, almost as scary as mercury tooth fillings, fluoridated water, and aluminum in deodorant.
Reel Ken profile picture
I saw the 60 minutes piece (actually tuned in for Larry David piece). I also saw Janney Capital's "rebuttal" on TV.

Have to say .... I was not the least but impressed by the rebuttal. He made some good points, but seemed to be uncomfortable and grasping. The non-verbal signs read, to me, at least, like an adulterous husband explaining that his encounters were just a drink amongst friends.

I think there are two issues ...

1) Is the product non-compliant (Janney Capital thinks NOT). If it is non-compliant, it's a major set-back with laws suits coming (Class action lawyers smell blood in the water). So stock will continue to suffer.

2) If it IS compliant, it may be so for technical "loophole" reasons. In any event the BRAND is hurt. No one in their right mind would buy flooring from them until confidence is restored. This will hurt earnings and that will hurt stock price.

Seems like no matter what happens it's a lose-lose for LL stock. So I think it is more a question of how long it will take for this to clean up and allow the stock to regain favorable price momentum. Meanwhile I'd stay as far away from LL as their flooring.
smitsky profile picture
Since you are a contributor I think you are also aware that not only Janney but two other investment firms including Morgan Stanley are not backing down from their bullish positions and price targets. Morgan Stanley's is $85 with a downgrade to "Equal Weight" on 3/2/2015.

I'm long and bullish. This institutional short-selling is way overdone in my opinion.
JohnBinTN profile picture
Contractors will eat LL's flooring inventory up if it gets discounted. New construction, apartments, cheap landlords, you name it.
Reel Ken profile picture
HI smitsky,

Janney is the one that I saw on TV ... not the others.

I was simply commenting on what he said and how he said it.

I have made no representation about the truth of anything, just an opinion that it doesn't matter. If the claims are true ... well you know ... if not ... damage is done and customers will leave, and earnings will suffer and so on.

If someone thinks otherwise, then maybe they should research Herbalife and every other company that faced bad news.
Black Gold profile picture
Lack of victims? That's because folks don't know these Chinese floors are releasing formaldehyde into their household air. How much of this crap has LL sold?

Lawsuits and inventory writedowns are coming. California is likely to come down on them hard especially for labeling products CARB compliant that actually were not.

Who is going to buy the Chinese junk anymore? Not anyone who watched or heard about the 60 Minutes piece. All of that inventory is worthless. How much do they have on the books?

Based on the founder's dodging/indirect answering of questions on the 60 Minutes piece and the factory worker's comments, I think it's safe to say LL likely knew about this and did it to try and save a buck.

This story is only getting started.
smitsky profile picture
How do you know that their products are not compliant? Do you have proof? What proof do you have and how did you obtain it? If you have proof to back up what you say other than hearsay evidence, then please come forward with it.
Started a small position in LL for speculative reasons.

MO sits in my IRA without ethical dilemma at 3.6% return on good vibes.
come on... how couldnt you know....
VERGE Currency (XVG) profile picture
I have to say the execs at LL seem extremely unapologetic for overloading their laminate floors with formaldehyde that slowly dissipates which means it is constantly in the air. People need to realize that the investment firms defending LL today are LOSERS. They just lost 25% on this so they have a vested interest in defending their investment and not the consumer.

I have no position in this stock, but am considering initiating a short position on moral grounds.
rob62 profile picture
Agree but might want to check out how crowded a short it is, very easy to get burned these days, it's not like it used to be
Taking a short position on moral grounds would be a money losing venture in shorting cigarette manufacturers but otherwise agreed 100%. Management is really showing its true colors here and the result is extremely sad. Nobody in their right mind should shop at LL even if LL were giving away flooring for free.
smitsky profile picture
I believe the executives of this company when they say their products are completely legit and up to standard and code.

You don't agree with me? That's your right and I'll respect that. I say prove it. Where's the proof? Chinese workers in China making a statement? You know what that it? Hearsay evidence that would not hold up worth a nickle in a U.S. courtroom.
rob62 profile picture
Lol this is why I quit shorting stocks it is such a hard way to make money.
alexscagileri profile picture
Shocked at the investigation of such abnormal price moves by the Federal Government as well.

Who do these regulators think they are?

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