Category Archives: LL

Review: Lumber Liquidator

As early as February 2015, when the stock price of Lumber Liquidator (LL) was trading at $50, we had indicated that there was a risk that Lumber Liquidator could decline below $23.47.  Since that time, LL had declined as low as $11.

In March 2015, we outlined our own theory of a coincidence indicator that would help investors know when the price of LL should recover.  Since that time, LL has fallen in line with our theory and has subsequently increased in price along with our proposed coincidence indicator.

From the low in LL stock price in 2016, we have seen the stock price climb as much as +200%.  The actual gain based on our recommended purchase price would be approximately +16% (8% annualized) assuming equal share amounts at/or below the recommended levels.

So what does the coincidence indicator say about LL and the prospects going forward?  The chart below is clear on this matter:

Review of 2015 Assessment of LL & SAM

On February 25, 2015, we posted Edson Gould’s Speed Resistance Lines [SRL] for Lumber Liquidator (LL) and Boston Beer Company (SAM).  Starting with LL, we said the following:

“Those interested in LL and willing to perform appropriate due diligence could engage in a three phase purchase plan beginning below $39.81, $31.64 and $23.47.  Investors, as opposed to speculators, should be willing to accept that there is no compensation for the wait when holding LL and that the decline to the ascending $23.47 level is a real risk.”

Since February 2015, LL has declined to the current level of $15.64.  While we might know the exact reasons why LL fell to the current level, we don’t know what to make of the dramatic decline other than the fact that the SRL gave every indication that this was possible.  Below is the updated SRL on Lumber Liquidator.

image

Upon further reflection, we examined the price of Lumber Liquidator and attempted to propose an alternative view on the stock price decline.  On March 3, 2015, we proposed the following thesis:

“The coincidence of Lumber Liquidator (LL) declining significantly at the same time as the futures price of lumber (as traded on the Chicago Mercantile Exchange) seems difficult to ignore.  Investors should take note of the fact that in three prior periods indicated in blue, LL has lost a minimum of –35% and as much as –53% when the price of lumber declined –33% or more. 

“So far, from December 2013 to March 2015, the price of lumber has declined –23% while LL has declined as much as –67.49%.  Much of the decline in LL has been exacerbated by concerns related to quality and sourcing of the flooring.  However,  the current decline is only slightly out of alignment from what has happened in the past.”

Continue reading

A Different Perspective on Lumber Liquidator

On February 25, 2015, when Lumber Liquidator was trading at $57.23, we said the following:

“Those interested in LL and willing to perform appropriate due diligence could engage in a three phase purchase plan beginning below $39.81, $31.64 and $23.47.  Investors, as opposed to speculators, should be willing to accept that there is no compensation for the wait when holding LL and that the decline to the ascending $23.47 level is a real risk.”

In fact, Lumber Liquidator blasted below the $39.81 support level and has rested at the $31.64 support level and started to move higher as seen in the chart below.

image

We’ve intentionally left out the move up from $38.83 to highlight the extent of the decline and the high level of coincidence with the supports levels that we had outlined in the previous month.  All that remains is the decline to the $23.47 level.

While famous short-sellers have the ear of influential media to talk their book and ensure their profits, we only have price action to work from.  For this reason, it is well worth noting another coincidence that relates to Lumber Liquidator and futures price on lumber as seen in the chart below.

image

The coincidence of Lumber Liquidator (LL) declining significantly at the same time as the futures price of lumber (as traded on the Chicago Mercantile Exchange) seems difficult to ignore.  Investors should take note of the fact that in three prior periods indicated in blue, LL has lost a minimum of –35% and as much as –53% when the price of lumber declined –33% or more. 

So far, from December 2013 to March 2015, the price of lumber has declined –23% while LL has declined as much as –67.49%.  Much of the decline in LL has been exacerbated by concerns related to quality and sourcing of the flooring.  However,  the current decline is only slightly out of alignment from what has happened in the past. 

We say slightly because we’re excluding the peak in lumber at 395.50 when LL was trading at $62.19.  While lumber was trading lower and not to exceed the $395.50 (considered a bear market), LL gained another +92.05%.  If Lumber Liquidator’s decline was measured from the February 15, 2013 peak in lumber at $395.50, the decline in the stock price would equal –37.56%.

Assuming we aren’t on the cusp a new bear market, the decline in LL has been overdone and an individual willing to accept the downside risk to $23.47 should consider implementing a three phase purchase plan.  An investor must keep in mind that the conservative upside target is $80.53 which is the new “limit” for the stock instead of the previous $119.44.  In addition, the downside targets now act as upside resistance level as was the case when LL could not sustain the $53.68 level prior to the recent collapse.

Technical Take: LL & SAM

Below are the downside targets using Speed Resistance Lines [SRL] for Lumber Liquidator Holdings (LL) and Boston Beer Company (SAM) based on the work of Edson Gould.

Lumber Liquidator (LL) has declined from the peak of $119.44.  Gould’s SRLs suggest that from the peak price, LL has a conservative downside target of $53.68 and an extreme downside target of $39.81.

image

On February 25, 2015, LL was unable to sustain a price above the ascending $53.68 level with a decline of over –17%.  Our best guess is that LL will decline to the ascending $39.81 level, which currently approximates $49.50 price.  Those interested in LL and willing to perform appropriate due diligence could engage in a three phase purchase plan beginning below $39.81, $31.64 and $23.47.  Investors, as opposed to speculators, should be willing to accept that there is no compensation for the wait when holding LL and that the decline to the ascending $23.47 level is a real risk.

Boston Beer Company (SAM) is the brewer of Samuel Adams beer and a multitude of other “craft” beers.  Today SAM declined –10% on an earnings miss.  Below is the SRL for SAM.

image

Our expectations for SAM are not very high as the last time that the stock was able to achieve the conservative downside target of $70.13 was in 2011.  Since that time, SAM has faltered but not fallen.  In spite of this fact, we’ve outlined the conservative downside target of $180.12 and the extreme downside target of $107.99.  Investors should note that a decline to the ascending $180.12 level is an ideal buying target with a follow-up purchase below $141.25.  As with Lumber Liquidators, SAM is bet on growth in the stock price and not much else. 

The relative strength of each company (long-term viability) is what makes these stocks compelling and worth considering at the appropriate predetermined price.