Why Lumber Liquidators Holdings Inc. Stock Plummeted Today

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.

What's happening:Shares of Lumber Liquidators Holdings Inc. dropped more than 21% early Monday after a 60 Minutes report alleged the company is selling products that contain illegally high levels of formaldehyde.

Why it's happening:Specifically, the report cited lab tests performed by an environmental and consumer protection nonprofit which found some samples of Lumber Liquidators' laminate flooring contained as much as 20 times the amount of the chemical -- which is a known carcinogen -- allowed under California law.

First, keep in mind these allegations are nothing new, but rather were first leveled against Lumber Liquidators in a separate report way back in June 2013. That report was also widely believed to be the reason behind a federal search performed on the company's corporate officesonly a few months later. All the while, Lumber Liquidators' management has steadfastly insisted it practices strict adherence to the government's regulations.

This time was no different. Lumber Liquidators responded in a statement, "Our laminate floors are completely safe to use as intended." It also noted, "We believe that 60 Minutes used an improper test method in its reporting that is not included in [the California Air Resources Board's] regulations," and went on to insist "These attacks are driven by a small group of short-selling investors who are working together."

Of course, I'm not an expert on formaldehyde testing or air-quality requirements, so I can't speak to which side is in the right. And whether Lumber Liquidators' decline is sustained for more than just the short-term remains to be seen. But given the renewed worries stemming from the report, which some analysts have already said was worse than they expected, it's hard to blame the market for taking a step back Monday.

The article Why Lumber Liquidators Holdings Inc. Stock Plummeted 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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