Last week, the Department of Homeland Security and the US Fish and Wildlife Service executed a sealed court-issued search/raid on the headquarters of Lumber Liquidators Holdings Inc (NYSE: LL), sending the shares downward (albeit they have regained about half the value lost since then), but LL has still far outperformed large cap home improvement stocks like The Home Depot, Inc (NYSE: HD) and Lowe's Companies, Inc (NYSE: LOW). Lumber Liquidators Holdings then issued a press release which noted they are cooperating with authorities and that they source wood products from approximately 110 domestic and international mills around the world and has more than 60 professionals globally who perform and monitor those processes.
Nevertheless, one should expect that a few boards from dubious sources (suspicion of using Mongolian Wood according to online chatter) or endangered something-a-rathers could get through – enough to nail the company on to extort a big fine (plus reward trial lawyers with material for class action lawsuits). But one also has to wonder what sort of security threat comes from imported wood (even if its from Mongolia) for fancy floors to attract the attention of the Department of Homeland Security (supposedly it's the Immigration and Customs Enforcement divisions – so talk about government agency overlap as I thought we had separate agencies doing that sort of work). Moreover, the government has yet to tell the CEO and the company what they are doing or have done wrong.
So why would the Feds want to nail Lumber Liquidators Holdings on something – even if its just a few questionable floor boards? A quick look at the website of Lumber Liquidators Holdings reveals the company is not ashamed to have floored the homes of the following celebrities whose political views are well known:
Rush Limbaugh used Lumber Liquidators flooring for his EIB Southern Command Studios plus the company is a big advertiser on his show (although those ads were placed by an agency and not the company directly according to a company blog post) Laura Ingram used Lumber Liquidators Flooring in her home. The Donald Trump installed Bellawood Bloodwood at his home in the Trump Tower. Dr. Laura has put Bellawood Austrailian Cypress from Lumber Liquidators in her studio and she says that "Bellawood is the best!"I should also mention that in the notorious case of the government's raids on Gibson Guitar Corp. where they were accused of obtaining wood that was illegal in India and Madagascar, the CEO was a well known Republican donor while the CEO of a competing company (who used wood from the same sources) was known to give to Democratic candidates and left untouched. However, Judge Andrew Napolitano was recently on Fox News to point out that the CEO of Lumber Liquidators Holdings actual held a fundraiser for Obama. So with friends like that, who needs enemies? Unless the frenemy is in need of ever more revenue...
With that said, Lumber Liquidators Holdings has been clawing back its losses as shares on Tuesday rose 1.91% to $108.69 (LL has a 52 week trading range of $47.31 to $115.59 a share) for a market cap of $2.99 billion plus the stock is up 110.8% since the start of the year, up 114.5% over the past year and up 725.9% over the past five years. A quick look at the long-term performance of Lumber Liquidators Holdings verses that of The Home Depot and Lowe's Companies reveals LL has floored the home improvement competition:
Finally, here are the latest technical charts for Lumber Liquidators Holdings along with The Home Depot and Lowe's Companies:
As you can see from the above charts, things are looking rather bullish for both Lumber Liquidators Holdings and Lowe's Companies.
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The Bottom Line. No doubt the Feds will find a few questionable boards to nail Lumber Liquidators Holdings on where they negotiate or rather extort a fine as well as a payoff to the trial lawyers (who are busy sending out press releases about class action lawsuits), but the big business of flooring and home improvement will go on. Moreover and given the somewhat fishy nature of the investigation, it could actually mean more business for Lumber Liquidators Holdings if people like Rush and Laura Ingram start talking about the story in the same sentence with the IRS targeting scandal and the Gibson Guitar shakedown - despite the company having an Obama pal as its CEO.
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