Whitney Tilson was on 60 Minutes to discuss his biggest short right now, Lumber Liquidators. Tilson has done well with the position, as the stock keeps falling, and its anyone’s guess how much LL will sink tomorrow after the latest expose from 60 minutes. The bear case for LL – to the best of our knowledge – came from investigate reporter Roddy Boyd of SIRF. See the clip from 60 minutes below, as well as some excerpts from the transcript.
60 minutes on Lumber Liquidators
One of the first people to raise questions about Lumber Liquidators Holdings Inc (NYSE:LL) back in 2013 was Whitney Tilson, a Wall Street hedge fund manager. He has shorted the company’s stock but is not involved in any lawsuit against it.
Whitney Tilson: In 16 years of professional money management, I’ve seen hundreds of companies do all sorts of bad things to get their stock prices up. But this has got to be the worst.
Whitney Tilson studies the workings of companies he’s interested in investing in and he noticed the profit margins at Lumber Liquidators seemed unusually high compared to its competitors.
Whitney Tilson: When you see a commodity business suddenly double its profit margins, that raises red flags.
Anderson Cooper: Because it’s hard to have your profit margin double in two years?
Whitney Tilson: Exactly. It’s almost unprecedented for a company.
Based on those profits, Lumber Liquidators’ stock price had gone from $13 a share in 2011 to $119 in 2013.
Tilson suspected the company might be breaking the law. He learned they were under federal investigation for allegedly buying timber illegally logged in Russia. U.S. agents had raided Lumber Liquidators’ headquarters in September 2013. The company denies buying illegally logged wood but announced just this week the Department of Justice may file criminal charges against them.
Six months after he bet millions the stock would go down, Whitney Tilson got tipped off by someone familiar with Lumber Liquidators’ operations’ in China, who said he was missing the bigger story.
Whitney Tilson: The much bigger story, he said is that Lumber Liquidators was almost certainly purchasing formaldehyde-tainted laminated flooring in China.
Anderson Cooper: Why would Lumber Liquidators purchase wood that’s tainted with formaldehyde?
Whitney Tilson: The answer is greed. Plain and simple. Its cheaper and– it reduces the cost by about 10 percent.
Anderson Cooper: Which in a business with these kinds of profit margins – 10 percent means – it’s a lot of money?
Whitney Tilson: It’s enormous.
See the full transcript here