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1 Little-Discussed Problem This Pro Is Watching At Lumber Liquidators

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Speaking to Benzinga, Rand Strategic Partners Co-Founder Todd Sullivan commented on Lumber Liquidators Holdings Inc (NYSE: LL) ahead of its Thursday conference call.

Sullivan felt there were "a bunch of issues" that the company needed to address.

"It seems they are getting [a discount]," Sullivan said, if the company is in fact buying wood that shouldn't be used for flooring.

"A considerable decline in its [financial] results," he warned, is possible if Lumber Liquidators will decide to no longer purchase wood from the same sources. That is, of course, assuming there is a problem with existing sources.

Related Link: Wedbush: Lumber Liquidators Is 'Not Out Of The Woods,' But Bankruptcy Unlikely

Sullivan explained the company had objected to 60 Minutes' test of its wood because the testers broke down the wood before testing it for formaldehyde.

According to defenders of Lumber Liquidators, this process was like an emissions test, and was the equivalent of evaluating a car without a catalytic converter and muffler.

'Here's A Problem'

Sullivan pointed out, however, that the company has not -- to this point -- explicitly denied there are high levels of formaldehyde in the wood.

"Here's a problem: According to the California Air Resource Board, formaldehyde from sources such as pressed wood products can take years to off-gas," according to Sullivan.

He noted that over time, the surface's protective layer is worn away before "then the off-gassing starts."

Sullivan explained that while wood may pass a formaldehyde test initially, it could, in later years, emit "very high levels of formaldehyde."

Using the company's auto emission test analogy, Sullivan asked: "Should we be testing their flooring every year...to see if the emissions are too high?"

Driving The Point Home

Sullivan emphasized that the company has not "denied that there are higher than acceptable levels of formaldehyde within the wood itself."

Rather than denying the high levels of formaldehyde, Sullivan said Lumber Liquidators made a "non-denial, denial" and claimed it was tested incorrectly.

The investor acknowledged there could be other explanations, but added that the company has not sufficiently addressed those yet.

Lumber Liquidators Holdings Inc recently traded at $33.04, up 11.70 percent.

Kevin Riley and Brianna Valleskey contributed to this report.

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