Why Lumber Liquidators Holdings Inc Stock Jumped Today

Lumber Liquidators is cooperating with a new government investigation into its products. Here's what investors need to know.

Steve Symington
Steve Symington
Mar 25, 2015 at 12:00PM
Consumer Goods

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) rose as much as 10.8% early Wednesday, then settled to trade up around 7.4% after the U.S. Consumer Product Safety Commission stated the company is cooperating with an investigation into whether certain laminate flooring products it sells are safe.

So what: In a teleconference Wednesday morning, CPSC chairman Elliot Kaye confirmed they are "actively investigating" certain laminate flooring sold by Lumber Liquidators and alleged in a recent 60 Minutes report to contain illegally high levels of formaldehyde, a known carcinogen. But Kaye also noted Lumber Liquidators is cooperating with the investigation, and suggested it will be "months, not weeks, before we can have some sense of the answers."

Lumber Liquidators, for its part, confirmed separately to the Associated Press on Wednesday that it "has already provided a significant amount of testing and safety information to the agency."

Now what: Remember, Lumber Liquidators has steadfastly insisted its products are safe to use as intended, and compliant with the regulations in question. In a recent business update, Lumber Liquidators also called the "deconstructive" testing methods used by 60 Minutes unreliable, and said it was looking forward to clearing the air with the CPSC and any other relevant agencies with questions about its products. Lumber Liquidators also initiated an air quality testing program to qualifying customers at no cost.

Of course, this doesn't completely negate the risk the CPSC's investigation might yield unfavorable results. But as it stands, I think investors are right to be encouraged Lumber Liquidators is behaving as a company with nothing to hide.