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They're done. The defective product they installed is so far reaching and so potentially damaging that I don't feel they can recover. Lawsuits and recompleting existing jobs are going to be this company's main focus for the near and intermediate future. Unless they can prove that the floors they installed were actually legit then I don't feel they'll ever recover.
Lumber Liquidators - Buy? (Originally Posted: 03/03/2015)
Interested to hear your guys input before I start looking into it. Obviously their reputation will be hurt, but the company has zero debt and seems to be equipped to weather the storm? Long recovery maybe, but I bet LL pays a fine, admits zero wrongdoing and people will move onto the next story. Backed by short sellers anyway, classic case of stock manipulation. So what do you guys think about LL's prospects in the 2-5 year time horizon?
No position. My best guess is that it will be a zero, but I don't know enough to take a position. Not really shortable at this point, selling calls is a possibility but the premiums are zilch by now, could buy long-term puts but the premium is pretty big there too (that said, still worth it if you think it's a $0). The liability for selling non-CARB compliant products will easily be enough to wipe out the company.
I've also considered building a position but consumers have long memories when it comes to anything that could potentially harm their kids. I read an article about a guy doing channel checks on the business and how local contractors were getting calls from worried mothers asking to have the floors ripped out. I will probably miss the boat on this one as I do think the company has a number of things going for it. Anyone take a deep dive?
Honestly I dont get how going long this is at all attractive, as a fundamental investor; as a trader, perhaps if you are trying to capture a short squeeze on any potential good news. There's a significant probability that they have a liability sufficient to wipe out the company. And say this somehow blows over without direct financial repercussions, you paid ~9X operating income already at the current stock price, do you really think this is a business that deserves a higher multiple? On a cash flow basis it's even worse, LTM FCF negative and ~$20-30MM/yr for last few years, and you're paying $940M TEV for this thing. It'd be very different if you were buying this at some crazy multiple like 2-3X cash flow, where if the business recovered you'd have a multi-bagger for sure.
Yeah this one is really tempting here but there's just zero visibility right now. They could easily get bogged down with lawsuits that cripple the company and the stock for the next five years. That said sales were only down 6% last qtr and i think comp store sales were only down about 10, which is a lot less than i would've expected. Gonna have to go back to higher quality producers so margins will get hit, but I think the stock could work here given the brand isn't completely FUBAR.
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