Lumber Liquidators (LL)

By Timothy Lutts, Cabot President and Chief Analyst of Cabot Stock of the Month

Originally from Cabot Wealth Advisory, 3/9/15

The two main things I know about Lumber Liquidators are this.

One: They make a nice product. I’ve personally put their engineered wood floors in two rooms in my house in recent years. What was 30-year-old carpet is now shiny tongue-and-groove Brazilian Cherry.

Two: Their stock had a great run, climbing from under 14 in 2010 to over 119 in 2013, as the company opened more and more stores and sales and earnings mushroomed.

But LL peaked in late 2013, just before earnings peaked, and since then it’s been trending down.

And most recently, it’s been falling like a stone, thanks in part to the efforts of a short-seller named Whitney Tilson, who not only claims the company has been skirting supply regulations (specifically formaldehyde levels) but also succeeded in getting 60 Minutes to do a segment on the story.

The resulting bad publicity, combined with reduced earnings estimates based on the new compliance costs, legal expenses and reduced revenues, has been hitting the stock hard.

Somewhere, of course, LL is going to hit a bottom.

And it’s natural to think that the stock has fallen so far that if you buy now, you can catch a nice bounce.

But that’s what buyers have been saying for the past two weeks, and every one of them has been wrong!

Remember what I said about trends. They tend to go further and last longer than people expect.

I wouldn’t touch LL with a ten-foot pole.

But what I would do, it I were you, is take a look at Cabot Top Ten Trader, which is a great source of recommendations on stocks that have positive momentum!

For example, back on January 19th, lead analyst Mike Cintolo recommended that readers buy Pharmacyclics (PCYC). It was trading at 143, having just broken out to a new high.

But just last week, Pharmacyclics agreed to be acquired by AbbVie for $21 billion, and shares are now trading at 255!

That’s a profit of 78% in less than seven weeks!

Like the early days of Home Depot and Lowe’s

By Paul Goodwin , Editor of Cabot China & Emerging Markets Report

Originally from Cabot Wealth Advisory, 5/19/08  

For my investing idea in this issue, I’m going to stick closer to home than usual. I’ve been noticing a company called Lumber Liquidators (LL) advertising on National Public Radio and elsewhere. The company began in Boston in 1993 when a man named Tom Sullivan began buying wood that other companies didn’t need and then reselling it. He dug out a niche market in hardwood flooring and opened its first store in 1996. 

The company now has more than 120 locations nationwide, and an enormous inventory of pre-finished and unfinished hardwood flooring, plus laminates, bamboo, cork and butcher-block products. 

Profits come from buying in enormous bulk (sometimes buying a mill’s entire year’s production) and passing the savings along to customers. I like it for two reasons. First, the story reminds me of the early days of Home Depot and Lowe’s, when an ambitious company starts using bulk buying and aggressive construction of new locations to consolidate a fragmented market. Lumber Liquidators looks to be the category king of whatever markets it enters.

Second, I like the chart of this November 2007 IPO. It came public just in time to be mauled by the winter bear, but since bottoming out at 6 in January, the stock has soared to 17 before pulling back slightly. Earnings trends are positive and just enough institutional investors have signed on to give the stock a sheen of respectability. It’s worth checking out.