Lumber Liquidators (NYSE: LL) is a classic opportunity to catch a falling knife. It was recently scandalized by news that some flooring products sourced in China had unlawfully toxic levels of formaldehyde. The CEO just resigned. The stock is down to 20 from a high 0f $119 in 11/13. It was at $70 last February. There’s a lot of heavy handed short interest scaring away any bulls.
I followed Lumber Liquidator (LL) after the first outbreak a few months ago. There is definitely a lot of potential for the appreciation of this stock due to their relatively healthy balance sheet. But please also read the fine print on their earnings release. They cash balance went from $80M to $20M from last FY to this FY. They totally asset is actually upward trending because their inventory level increase (not necessarily a good thing if inventory cost is cutting into the bottom line.
They also stated that consumers who utilize credits on their purchases are also increasing, which usually implies a higher default rate. LL is going to have to start cutting headcount expenses to save money because it simply cannot afford its current cost structure where SG&A outpaces gross margins. $20/share is definitely a good spot to step but also buy some options to hedge further downfalls.
Intersection notepad 