Whitney Tilson Shorts Lumber Liquidators Again, Says Co. Has 50% Chance Of Bankruptcy
Tilson continues to believe, as he said in December, that Lumber Liquidators' management team wasn't aware of the toxic laminate and thus no longer thinks this company is evil. With the stock is now a bit lower, he re-established a short based on new information that led him to believe that the likeliness of a "very bad" outcome for the firm and its stock has risen substantially.
Given this new information, Tilson now thinks that there is at least a 50 percent chance of Lumber Liquidators going bankrupt, even though the company had $6.7 million of net cash and $67.2 million available on its line of credit by the end of the fourth quarter. Why would a business that is "nicely profitable" under normal circumstances go broke?
Tilson shared three reasons to support his thesis.
- "Operating losses and cash burn will remain severely negative (in the range of Q4’s -$20-$30 million per quarter) for the foreseeable future – and could even get worse."
- It will probably be very difficult and expensive to settle the regulatory and legal issues the company faces, especially taking into account the recent tripling of the CDC's exposure and cancer risk estimate, and the fact that over one million people in the U.S. may have been exposed to the firm’s Chinese-made laminate over the past six years.
- Lumber Liquidators' "liability insurers have all denied coverage for the formaldehyde claims under the pollution exclusion in the insurance policies, forcing LL to pay its enormous legal fees out of pocket."
The stock crashed when the report was released, last trading at $12.31, down 11 percent.
Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.
Image credit: Dwight Burdette, Wikimedia
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|Dec 2015||Goldman Sachs||Downgrades||Neutral||Sell|
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