Lumber Liquidators Holdings Inc. (NYSE:LL) is under pressure from a 60 Minutes report that the company is selling flooring products that are toxic. The company had warned shareholders on February 25 of this year that there would be some bad press. Since that time, the stock has lost almost 50% of its value. The popular news agency did an undercover operation on a Chinese factory where the company’s products are produced.
During the undercover operation, 60 Minutes crews spoke with workers while wearing hidden cameras. This lead to the revelation that laminates being produced for the company did not meet California’s standards formaldehyde levels. Formaldehyde is a very powerful carcinogen that can cause myeloid leukemia and other types of cancers. This is alongside a serious respiratory risk created by exposure to the chemical. The workers admitted that formaldehyde levels were high but they still marked the products as having acceptable levels of the carcinogen.
Lumber Liquidators Holdings Inc. (NYSE:LL) have vigorously stated that they were unaware of the practice and are blaming the whole event on short sellers of its common stock. They claim they would never sell products that put the public at risk and that public safety is the highest priority at the company. Their stance is that public safety is always more important than company profits, but the damage of the video is already done and the valuation of the company has been reduced significantly. The assurance has not been sufficient to save the stock so far. This bad news comes at a time the company is already on the ropes for poor performance in the fiscal 2014 period. There will surely be legal actions resulting from the undercover operation and some heavy pressure from environmental groups.
The stock was hammered once the news broke but amazingly held support at around $48. This could create a short squeeze and if the company is correct about the accusations they made stating the news was created by short sellers, could result in a significant move. The first indicator of the short squeeze would be a move above $55.