I want to share with you some recent news on the company Lumber Liquidators as another example of how screening companies for sustainable criteria can yield dramatic results. Since November, after hitting an all time high of $120 per share, Lumber Liquidators shares have experienced a dramatic decline in price.
In September 2013, the company’s headquarters were raided by federal authorities on suspicion regarding “the importation of certain products”. This action is believed to have come off the heels of a research finding from an independent environmentalist group that found that wood was being sourced from an area that was sanctioned off for the preservation of an endangered species, the Siberian Tiger.
This week the prominent short seller, Whitney Tilson, presented his timely bearish argument on Lumber Liquidators. Interestingly his comments touched on the trafficking of illegal wood in China and the likelihood that a meaningful percentage of the 51% of LL’s wood sourced in Asia originates from Chinese mills engaged in this illegal activity. This factor is significant because going forward, the company will have to prove that its wood is not being sourced from illegal practices and in cutting off certain suppliers from China, this will in all likelihood pressure gross margins which have been largely responsible for the company’s remarkable performance.
From the time of the federal raid the shares have plummeted from their all time highs. Many investors were probably caught off guard by this development when it originally surfaced, but the point is this. Investors need to demand absolute transparency from companies when it comes to their supply chains. Had Lumber Liquidators provided this information to investors, many may have avoided buying into a “too good to be true” investment. This is just one of many goals addressed when we speak of Sustainability and its importance to finding worthy investments. As of Friday’s close, Lumber Liquidator’s was trading at $54.86. We do not hold any shares of Lumber Liquidators.
Andrew Friedman, CFP®
AJF Financial Services, Inc.
708 Third Ave., Suite 2011
New York, NY 10017
Securities offered through American Portfolios Financial Services, Inc. (APFS) Member FINRA/SIPC. AJF Financial Services, Inc. is not affiliated with APFS.
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