Lumber Liquidator CEO Purchases Shares, Stock Rises

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Nov 07, 2014
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Now could be the time to consider a position in Lumber Liquidators (LL, Financial) — President and CEO Robert Lynch may be on a buying spree, after purchasing 4,000 shares of the company on Oct. 29, and 2,000 shares on Nov. 4.

While insider buying is always a good sign, according to Peter Lynch in his bestselling book “One Up on Wall Street,” what sets Lumber Liquidators apart is Lynch’s track record over the years. It’s clear the CEO has good timing when it comes to buying and selling the stock — from 2011 to 2012, all of Lynch’s recorded transactions were buys, which caused the stock to increase more than 100% on seven out of nine occasions. In August 2011, the stock rose more than 307% after Lynch purchased 2,000 shares of the company.

Between May 2012 and February 2013, Lynch sold Lumber Liquidator shares on six occasions, after which the share price dropped about 30-45%.

Now that Lynch has purchased 6,000 shares in the past week, it may be that Lumber Liquidators is on its way up.

Year-to-date, the stock has been down 44%. When compared to the Peter Lynch earnings line, the price is moving closer to its true valuation from when the stock was previously highly overvalued.

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Lumber Liquidators is a specialty retailer of hardwood flooring, whose variety includes prefinished domestic wood, exotic hardwoods, engineered hardwoods, bamboo, cork and laminates. The company also has several proprietary brands including the flagship brand Bellawood.

For the third quarter ended Sept. 30, the company lowered the high end of its net sales estimate for the year to $1.065 billion, down from $1.1 billion. It also lowered its earnings per share guidance from $2.38 to $2.52, down from $2.65 to $3.00. SG&A expenses increased 7.2% to $78.4 million due to higher advertising and legal costs.

GuruFocus rates Lumber Liquidators' business predictability as 4/5 stars, given its history of consistent revenue per share growth, save for a slight down year in FY 2005. The company also holds no debt.

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The current P/E ratio is 24, which is comparable to the industry median of 23.1. The P/S ratio is 1.55.

Gurus who hold positions in Lumber Liquidators include Steven Cohen (Trades, Portfolio), Jim Simons (Trades, Portfolio), and Joel Greenblatt (Trades, Portfolio). Steve Mandel (Trades, Portfolio), however, holds the largest percentage of shares outstanding at 9.66%.

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