GEO Investing

GeoInvesting concurs with Whitney Tilson and 60 Minutes on the testing methods used in their Lumber Liquidators studies. On Sunday, a damning report featured on 60 Minutes pointed out alarming levels of formaldehyde in Lumber Liquidators’ laminate wood. The report was spurred by research done by Whitney Tilson, who is short LL. While trying to discern the investment thesis moving forward after the stock’s collapse, we tried to identify any areas of Tilson and 60 Minutes story that could be ripe for questioning. We noticed through our research over the past two days that the key question to the investment thesis is whether or not testing was performed correctly, and by California Air Resource Board Standards, by 60 Minutes and Whitney Tilson. Our conclusion is that the testing is likely accurate and authentic and that LL has a problem on its hands that has the chance of crippling the company moving forward.

GeoInvesting Short Lumber Liquidators

As such, we are short, and we’re presenting our findings:

  • A 60 Minutes investigative report on Lumber Liquidators, tipped off by short seller Whitney Tilson, appeared to show dangerous levels of formaldehyde in the company’s laminate wood
  • Lumber Liquidators, per their 8-K released on March 2nd, is contesting the methods in which the testing was performed on its wood
  • After reviewing California standards for formaldehyde testing and methods which were used by 60 Minutes and Tilson, we conclude that the test results are likely authentic and accurate
  • Lumber Liquidators’ cash position, per the 2014 10-K, is an anemic $20.3 million in cash and $47.3 million left on a revolving credit facility. We think the company will need cash soon.
  • Our investment thesis is decidedly bearish and we think significant risk exists for LL to move much lower

Please see our full bearish article here.

To stay ahead of the market with GeoInvesting arbitrage and learn about investment ideas not yet digested by the market, Sign up now for More Research and Insight