Why Lumber Liquidators Holdings, Inc. Stock Rose 24.8% in September

By Markets Fool.com

Image source: Lumber Liquidators.

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What happened

Shares of Lumber Liquidators Holdings Inc.(NYSE: LL) jumped 24.8% in the month of September,according to data provided byS&P Global Market Intelligence, following reports the hardwood flooring retailer could be the subject of takeover interest.

So what

More specifically, rumors surfaced claiming private equity investors were considering acquiring Lumber Liquidators for as much as $30 per share. However, as fellow Fool Rick Munarriz pointed out last month, that would admittedly be a massive buyout premium considering as of this writing Lumber Liquidators trades around $19 per share.

To be fair, Lumber Liquidators stock has also fallen more than 70% from its early 2015 highs, set just before a negative 60 Minutes report sent shares plummeting by alleging the company had sold laminate flooring products containing illegally high levels of formaldehyde (a known carcinogen). The fallout from that report has extended into 2016, including a largely positive agreement this summer between Lumber Liquidators and the Consumer Product Safety Commission (CPSC) under which the company agreed to tighten supply chain controls, and continue to offer no-cost voluntary emissions testing to consumers. And in part because none of around 1,300 previous tests of consumers' floors came in above remediation guidelines, Lumber Liquidators was not required to recall any of the now-discontinued products, and did not admit wrongdoing.

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Now what

That's not to say Lumber Liquidators has rebounded completely, either. Comparable-store sales fell 7.2% year over year in its most recent quarter, while revenue and net income per share fell 4% and 40%, respectively, over the same period. But Lumber Liquidators also saw some improvement in its top and bottom lines on a sequential basis, however slight.

Since then, Lumber Liquidators has announced encouraging senior management appointments, including a new CFO and a new CIO. And in August, the company announced it has resolved its outstanding Proposition 65 lawsuit in California with a favorable verdict.

Though it's hard to call that definitive proof that Lumber Liquidators is firmly on the road to a sustained recovery, it's not a stretch to think that private equity investors might be hoping to scoop up the company before such proof becomes more evident. For now, however, there are no guarantees a buyout will happen, and I think investors would be wise not to make it a central part of their buying thesis.

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Steve Symington has no position in any stocks mentioned. The Motley Fool recommends 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.