Lumber Liquidators is an Intriguing But Speculative Buy

Demand may remain suppressed as long as the supply chain is tangled 

Lumber Liquidators (NYSE:LL) delivered a “Goldilocks” earnings report of a different type. Here’s what I mean. On a year-over-year (YOY) basis, the company disappointed on both earnings and revenue. Earnings were down 56% from the same period in 2020 while revenue saw a 4% decline.  

However, it’s hard to make a fair comparison with last year when lumber prices were soaring along with demand for lumber products. And if you look back two years, Lumber Liquidators outpaced on the top and bottom line.  

But realistically, 2019 may not be a fair comparison either. And that’s the problem with analyzing the stock at the moment. It’s fair to say we’re seeing things we haven’t seen before.  

That being said, Lumber Liquidators stock is trading on the low end of its 52-week range. And that seems to be a bit extreme considering that demand for the company’s products remains high. In my mind, that’s what makes it an intriguing buy, but only for investors that have money they’re willing to wait on.  

Strategic Pivots are Paying Off 

Lumber Liquidators is aggressively pivoting towards the professional channel. The company has a dedicated team of sales representatives who are making sure that this channel is aware of the quality and breadth of the company’s offerings. The efforts are paying off as the company reported record third-quarter sales to the professional channel and double-digit year-over-year sales growth.  

The company is also making inroads in their omnichannel business model which, if successful, will put the company into the consideration set of the DIY consumer that has become accustomed to having those options available from retailers such as Home Depot (NYSE: HD) and Lowe’s (NYSE: LOW). 

The Sweet Spot Hasn’t Emerged 

In 2020, LL stock was a pandemic winner. If you bought the stock on April 4, when it was trading at $4.15 a share and held until the end of the year, you received a 640% gain. That return is even more impressive when you consider that Lumber Liquidators benefits more from lower commodity prices.  

That was also a reason for investors to have bullish sentiment heading into 2021. The thinking was that as lumber prices began to moderate it would bring even more demand for the company’s products. And the company made clear on its earnings call that demand remains strong. 

In fact, as the only pure play stock on hardwood flooring, Lumber Liquidators stands to benefit from multiple trends. First, demand for new construction remains high. Developers are taking this opportunity to build in suburban areas to meet high demand. Second, hardwood floors remain one of the most highly sought-after features in a home. And third, as some existing homeowners look to take advantage of a seller’s market, they will look to renovate to hardwood flooring.  

However, like so many other companies right now, Lumber Liquidators is caught in the supply chain trap. And management excpects higher material and transportation costs to impact its gross margins for the next several quarters. That presents investors with the choice to hang on or look for alpha elsewhere.  

What Do the Analysts Say? 

Lumber Liquidators is not heavily covered by the analyst community. However, MarketBeat lists three analysts as giving LL stock a rating in the last 12 months. The consensus opinion is to hold the stock with a price target of $21.  

That gain of over 15% may look attractive, but it’s a tough ask right now. LL stock has been trending lower, but recently prices have been consolidating. And it looks like after a sharp selloff following the earnings report, LL stock has almost made back the entire loss.  

This is why Lumber Liquidators is intriguing. There are many reasons to believe LL stock should move higher. But right now, the trend is bearish. I’d keep this on your watchlist and wait for a more clear buying signal.