Activist value investor Whitney Tilson sees no bottom to Lumber Liquidators' (LL) woes, a feeling echoed by much of Wall Street Tuesday.
Shares tanked 15% after the managing partner of Kase Capital presented a second major short position on the Stoughton, Mass.-based hardwood-flooring retailer. Shares have fallen 90% since Tilson presented his first short position in November 2013, according to a Kase Capital presentation Tuesday. Tilson again cited formaldehyde emissions among Lumber Liquidators' products -- which could lead to renewed litigation over harmful risks to customers and residents of buildings furnished with such products.
"I continue to believe that Lumber Liquidators' senior management was unaware of the toxic laminate and thus no longer believe this company is evil, plus the stock is now a bit lower, so why have I re-established a meaningful short position (my largest at 4+%)?" Tilson said in the presentation. "Very simply, I have new information that leads me to believe that the odds of very bad outcomes for Lumber Liquidators and its stock have risen materially based on new information in six areas."
Tilson went on to cite what he considers the insufficient investor concern in increased cancer risk of chemicals used in Lumber Liquidators' products; increased likelihood of legal battles; lack of confidence in management; as well as skidding same-store sales.
CBS's 60 Minutes first broke news of excessive levels of toxic emissions from Lumber Liquidator's laminate flooring in March 2015, and correspondent Anderson Cooper followed up in August to refute company assertions that the levels of formaldehyde emissions from products meet health and safety standards.
"Lumber Liquidators is a U.S. company, but much of its laminate flooring was made in China," Cooper said. "And as we discovered when we first reported this story in March, it may fail to meet health and safety standards, because it contains high levels of formaldehyde, a known cancer-causing chemical. Lumber Liquidators has insisted ever since our report that its Chinese-made laminate flooring is safe, but it doesn't appear that way based on what we learned from our own reporting and from the work of people like Denny Larson," who is executive director of Global Community Monitor, a non-profit community protection organization.
"Overall, the trouble of the business right now is overall weakness with sales," Oppenheimer analyst Brian Nagel said Tuesday in a phone interview. "We haven't found a floor. I've got a neutral position, and right now things are fine from a liquidity stand point."
Meanwhile, Real Money's Paul Price -- who closed his Lumber Liquidators positions in March 2015 amid unpredictable legal circumstances over public health concerns on flooring products -- echoed Nagel's sentiment that Lumber Liquidators investments are largely speculative positions: "I cannot recommend anybody but rank speculators own Lumber Liquidators now," he said in an email Tuesday. "It might end up at zero."