Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Lumber Liquidators Holdings Inc (NYSE:LL) were down 16% as of 3:30 p.m. Friday after multiple analysts weighed in with negative commentary on the hardwood flooring specialist.
Of course, yesterday marked the third consecutive day Lumber Liquidators stock had climbed more than 10% -- albeit on the heels a massive plunge last week caused by a negative 60 Minutes report alleging unsafe products are being sold by the company -- so today's pullback isn't entirely surprising.
So what: Yesterday's pop was largely driven by encouraging comments from management during their planned business update conference call, during which they insisted their products are safe, and argued "media reports provided very little context" on the unreliable nature of "deconstructive" testing featured in the 60 Minutes segment. Lumber Liquidators also promised to offer independent testing of the flooring in question for qualifying customers, and provided revised guidance for the current quarter given the resulting declines in sales following the report.
But keeping in mind Lumber Liquidators opted not to offer full-year 2015 guidance, today Nomura analyst Jessica Schoen Mace indicated she has suspended her firm's coverage of Lumber Liquidators as long as "overall visibility into an improvement in sales and margins remains low."
In addition, analysts at Goldman Sachs downgraded Lumber Liquidators to "neutral" from "buy," stating they expected sales to be negatively affected by the report, but were surprised given a more severe impact to margins. Goldman also voiced disappointment Lumber Liquidators didn't address 60 Minutes' claim that third-party inspectors in China admitted to improperly labeling non-compliant products as certified, or explain why its laminate flooring couldn't pass the deconstructive safety tests (while products sold by other companies did).
Now what: As of this writing, Lumber Liquidators stock is still down more than 50% since the report was released, so I'll admit it's tempting to open a small position with the hope the company can ultimately prove it's in the right. For now, however, even if the allegations aren't merited, big risks remain given both the hit to Lumber Liquidators' rapport with consumers, the threat of looming class action lawsuits, and further attacks from the small group of short-sellers the company claims are driving the negative campaign. Until those threats are further negated, I personally still prefer watching this story unfold from the sidelines.