Lumber Liquidators, Inc. (NASDAQ: LL)
Yesterday, shares of Lumber Liquidators soared almost 25% on news that hedge fund manager Whitney Tilson had closed his highly publicized short position on the stock. Tilson remained firm on his stance that LL was in fact selling products with dangerously high levels of cancer-causing formaldehyde, but he ceded that senior management was unaware of its failings, and was duped by Chinese suppliers.
LL Short Refresher
Tilson first presented his short case at the Robin Hood Investor Conference on November 22, 2013. The thesis essentially stated that LL was knowingly selling flooring sourced from China, which contained illegally high levels of the carcinogen, formaldehyde. The stock, which had been trading near $120, sold off hard over the following three weeks until it finally caught support at $85.60. The stock continued to decline on disappointing earnings but seemed to level off until February 2015 when Tilson took his short thesis to the famous television show, 60-Minutes. In late February 2105, 60-Minutes announced plans to run a March 1 story on Lumber Liquidators. At the same time, rumors of a Department of Justice investigation into Lumber Liquidators surfaced. The stock dropped from $70 on February 25, 2015 to $27.79 on March 9, 2015.
In a blog post about covering his short position, Whitney Tilson wrote, “In the past week, I’ve received information that leads me to believe that senior management of Lumber Liquidators wasn’t aware that the company was selling Chinese-made laminate that had high levels of formaldehyde. If this information is correct, then the company was sloppy and naïve, but not evil. If there are no “smoking gun” documents/emails, then the doomsday scenario for the company (and the stock) is less likely, so I covered my short position today.” Seeking Alpha
LL Technical Analysis
Lumber Liquidators has been pummeled in the two years since Whitney Tilson first disclosed his short position with the stock down from $119.98 to recent lows of $11.62. During Monday after-hours and Tuesday pre-market trading, the stock climbed 24% to $18.42 on light volume. The stock opened Tuesday at $17.92 and sold off on heavy volume to LOD of $16.71. It climbed back to $18.25 by mid-afternoon, but was never able to get above pre-market highs. LL has a low float of 26 million shares of which 40.5% is short. A volume push thru $18.42 could ignite a short squeeze and quickly get to the 200-day moving average at $20.61. On the other side a volume breach of Tuesday’s $16.71 keeps the shorts in control with support at $15.75 on the way to a gap fill at $14.06.
About Lumber Liquidators Holdings, Inc.
Lumber Liquidators Holdings, Inc. (Lumber Liquidators) is a retailer of hardwood flooring, and hardwood flooring enhancements and accessories in North America. The Company’s product categories include Solid and Engineered Hardwood; Laminate; Bamboo, Cork and Vinyl Plank, and Moldings and Accessories. The Company sells its products primarily to homeowners or to contractors on behalf of homeowners. The Company offers wood flooring under18 brand names, led by Bellawood, a collection of solid and engineered hardwood flooring, bamboo flooring, moldings and accessories. The Company also offers a range of flooring enhancements and installation accessories, including moldings, noise-reducing underlay and tools. It offers around 400 different flooring product stock-keeping units. As of February 23, 2015, Lumber Liquidators operated around 354 stores located in 46 states of the United States and nine store locations in Canada. Google Finance