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How High Can Lumber Liquidators Fly?

Sean Williams
May 30, 2012

Shares of Lumber Liquidators (NYSE: LL  ) hit a 52-week high on Tuesday. Let's take a look at how it got there and see if clear skies are still in the forecast.

How it got here
You may have noticed that the stock market had a nearly 10% correction earlier in the month. Then again, if you own shares of Lumber Liquidators, you'd have no clue, as it's done nothing but go up for months.

The strength behind Lumber Liquidators' move higher is a broad one that we're witnessing across most of the home improvement sector. With many homeowners stuck in their homes due to tight credit markets and falling home prices, many have instead turned to remodeling their homes to give them a fresh look. That's great news for Lumber Liquidators, a provider of hardwood flooring; Beacon Roofing Supplies (Nasdaq: BECN  ) , a supplier of roofing materials; Trex (NYSE: TREX  ) , a manufacturer of deck products and coatings; and Lowe's (NYSE: LOW  ) and Home Depot (NYSE: HD  ) , the do-it-yourself centers that tie all of these interests together under one roof. With the exception of Trex, all five of these companies have remained profitable despite the worst housing downturn in 70 years (in Trex's defense, its latest profit crushed Wall Street's expectations).

Lumber Liquidators logged a 7.5% increase in comparable-store sales last quarter as customer invoices rose 8% and transportation and material costs actually dropped. How often do you hear a company mention that revenue rose while costs dropped? Not very! The company also took the time to raise both its full-year sales and EPS outlook in its latest quarterly report.

How it stacks up
Let's see how Lumber Liquidators stacks up next to its peers.

LL Chart

LL data by YCharts.

As you can see, the entire home improvement sector has been on a tear over the past five years, with specialized companies benefiting more than more-diversified do-it-yourself stores.



Price/Cash Flow

Forward P/E

5-Year Revenue CAGR

Lumber Liquidators 3.8 19.6 20.5 15.5%
Home Depot 4.3 11.0 15.2 (5.0%)
Lowe's 2.0 8.0 12.0 1.6%
Beacon Roofing Supply 2.1 13.6 14.8 3.9%

Sources: Morningstar and author's calculations. CAGR = compound annual growth rate.

Lumber Liquidators is the priciest of this group based on cash flow and forward P/E. However, it's also grown significantly faster tha