The shares Lumber Liquidators Holdings are trading higher after an activist investor disclosed that he initiated a long position amid controversy regarding the safety of its products.
The stock price of Lumber Liquidators increased more than 14% to $33.78 per share at the time of this writing around 2:29 in the afternoon in New York.
Chapman acquires stake in Lumber Liquidators
Activist investor Robert Chapman of Chapman Capital informed CNBC that his long position Lumber Liquidator account 15% of his fund. According to him, the stake was partly through call options.
Chapman’s decision to invest in Lumber Liquidators is surprising given the fact that the retailer of hardwood flooring is embattled by the investigative report from CBS’ 60 Minutes.
The new program reported that the products of Lumber Liquidators have higher level of formaldehyde than the amount allowed under the health and safety standards of California. Formaldehyde is a cancer causing toxin.
Whitney Tilson, the founder and managing partner of Kase Capital Management originally brought the story about Lumber Liquidators’ products to CBS. Tilson also revealed last week that he is increasing his short position on the stock.
Investors questioned 60 Minutes report
A separate report from Fox Business indicated that an increasing number of hedge funds and large investors are questioning the methodology behind the investigative report of 60 Minutes about Lumber Liquidators.
One of the hedge fund managers told Fox Business that 60 Minutes used a faulty methodology in its report. The executive noted that the news program tested the laminate flooring in a deconstructed manner, which is not mandated by California.
Lumber Liquidators’ response to the report
In response to the investigative report, Lumber Liquidators emphasized that it is a “leader in safety” given its record of providing wide range of two million satisfied customers across America.
“We comply with applicable regulations set by the California Air Resources Board (“CARB”), which is currently the only regulator of composite core emissions. Every manufacturer of fiberboard cores used in our products is certified in accordance with CARB regulations.”
“We have documentation to support each step of our production process, including vendor agreements, vendor invoices, CARB certificates, and test results, to serve as further proof that our processes, practices and products are compliant across the board,” according to Lumber Liquidators.
The retailer of hardwood flooring added that it is observing the standard set by the CARB regulations in every market where it has business operation despite the fact that it is only applicable in California.
Lumber Liquidators also stated in its statement, that 60 Minutes noted that the attacks against the company were “driven by a small group of short-selling investors” working together to lower its stock price to make profits. The company pointed out that their “motives and methods are wrong and we will fight these false attacks on all fronts.”