Why Shares of Lumber Liquidators Holdings, Inc. Popped 18% in May

Earnings weren't great in the first quarter, but analysts see better days ahead anyway.

Travis Hoium
Travis Hoium
Jun 8, 2017 at 10:13AM
Consumer Goods

What happened 

Shares of Lumber Liquidators Holdings, Inc. (NYSE:LL) jumped 18% in May, according to data provided by S&P Global Market Intelligence, after the flooring giant got two big upgrades from Wall Street. That's a little surprising after a pretty big earnings miss early in the month. 

So what 

On May 2, management reported earnings and results were mixed. Revenue rose 6% to $248.4 million and net loss improved from $32.4 million to $26.4 million, or $0.93 per share. But analysts were expecting a loss of just $0.21, so the natural reaction would seem to be for the stock to drop during the month. 

Laminate flooring samples.

Laminate flooring samples. Image source: Getty Images.

What drove the stock is that immediately after earnings Wedbush increased its rating to outperform and Oppenheimer followed mid-month by giving the stock the same rating. That second upgrade is really when shares shot higher as three straight quarters of improving same-store comps gave analysts and investors enough confidence to jump on board. Now, we just need to see some bottom-line improvement, but that may take a little longer, with analysts predicting $1.01 per share in losses this year. 

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Now what 

The outlook for Lumber Liquidators has been improving for over a year as the company comes off lows after the scathing 60 Minutes report in 2015. And while we're starting to see improvement, it's difficult to know fundamentally where the stock should be trading. Like I mentioned, analysts are forecasting a loss this year and just $0.25 per share in earnings next year. This pop may be driven by optimism, but the company needs to start improving performance rapidly to keep meeting the market's expectations.