Be careful, Lumber Liquidators (LL). We have a precedent and it is a brutal one.
Anyone who was trading back in November of 1992 remembers how "ABC Primetime" exposed Food Lion as an alleged purveyor of rotten food. ABC had hidden cameras that showed the deed being done. Many wanted to buy the stock of the company after it lost $1.3 billion in market cap, a huge chunk of the company's capitalization.
But what really mattered after the huge expose was that earnings fell from $178 million in 1992 to $3.9 million the following year, according to a 1996 Fortune magazine piece discussing the case.
It was anything but a quick recovery.
That's what I worry about with Lumber Liquidators. The sales.
Food lion sued ABC news for fraud and the case bounced around before the company won a $5.5 million judgment. But a Federal Court of Appeals threw out most of the charges Food Lion made and threw out all but $2 in damages.
I see Lumber Liquidators issuing a release saying that they stand by "every single plank of wood and laminate." It is directly attacking the "60 Minutes" story. It is also slamming the short-sellers, including Whitney Tilson, who cut his teeth writing for us and has been on CNBC's "Halftime Report" and will be here on video later.
But the fact remains that you had to wait for ages before people forgot the ABC piece -- fraudulent or not. Sales were crushed. I think that could happen again here, which makes for LL's stock a real tough long (see others).