CPSC Unlikely to Recall Lumber Liquidators Holdings Inc (NYSE:LL) Flooring
When shares of Lumber Liquidators Holdings Inc (NYSE:LL) fell below $21.00 we were forced to pull our recommendation and official rating. Effectively, we could not condone holding shares of Lumber Liquidators or buying shares even for short term trading purposes. The stock preceded to fluctuate, at times offering decent, albeit speculative trades on both sides of the fence, long and short, but ultimately the stocks action post earnings has changed our observation.
Although we recognize that margin pressures exist and we are very aware of the myriad of issues facing the company, it is our opinion after extensive investigation that the major potential negative catalyst overhanging the company at this time will soon go away.
The most damaging potential negative catalyst in our opinion is the risk that the CPSC may recall flooring from Lumber Liquidators. Their decision is not formal, but the process started a few months ago and the intention was to expedite the investigation given what transpired after the 60 minutes report.
In our opinion the findings of the CPSC are imminent.
In addition, and importantly, we do not expect the CPSC to issue a recall.
The basis for this opinion rests in the testing methods conducted by the CPSC. We have already issued formal research about their methodology but, to summarize, they will not be using the same testing methods as California. Additional information
Given the massive negative potential impact of a recall, something that many short Sellers appear to be betting on, we would expect shares of Lumber Liquidators to increase aggressively on the heels of a decision by the CPSC to not issue a recall.
The aggressive decline in shares of Lumber Liquidators in recent days has brought the stock down to a level where we believe it warrants attention and could offer exceptional returns on a near term basis, especially on the heels of a favorable CPSC investigation.