Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
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What:Shares of Lumber LiquidatorsHoldings Inc rose by as much as 13.7% early Tuesday, then settled to trade up around 7.4% as of 2:30 p.m. after analysts at Janney Capital Markets upgraded their rating on the stock from "neutral" to "buy."
So what:Specifically, Janney Capital stepped out to defend Lumber Liquidators after a60 Minutesreport accused the company of selling products that contain illegally high levels of formaldehyde, a known carcinogen. When all was said and done Monday, Lumber Liquidators stock haddropped 25%following the report.
But Janney Capital's note sheds doubt on 60 Minutes' accusation, saying Lumber Liquidators will be "largely exonerated" when they tell their full side of the story. It elaborated:
We believe 60 Minutes did not provide a complete picture of the issue. It didn't highlight victims, had no feed back from regulators and relied on anonymous Chinese factory workers making accusatory statements. There was no attempt to discuss different testing methodologies used, or to account for the fact that the testing that LL uses makes them CARB [California Air Resources Board] compliant.
What's more, Janney points out that it "just makes no sense" that Lumber Liquidators' management would be willing to put their reputations at stake selling the small range of products in question, which would only generate a "few million dollars in annual savings."
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Now what:For the record, Janney's note also largely echoes the initial response issued in a statement by Lumber Liquidators management yesterday. In that response, the company voiced its belief that a small group of short-sellers are driving this attack, and insisted its floors are CARB compliant and "completely safe to use as intended."
Though this fight is definitely nowhere near complete, I agree Lumber Liquidators would be absolutely crazy to risk destroying the rapport they've built with consumers to knowingly push a small batch of non-compliant products. In the end, if Lumber Liquidators and Janney are right, the recent dip in Lumber Liquidators stock could ultimately be a solid buying opportunity for patient, long-term investors.
The article Why Lumber Liquidators Holdings Inc Stock Popped Today originally appeared on Fool.com.
Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Lumber Liquidators. The Motley Fool owns shares of Lumber Liquidators. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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