LL - Embedded Expectations Analysis - 2019 10 24
Lumber Liquidators Holdings, Inc. (LL:USA) currently trades near historical lows relative to UAFRS-based (Uniform) Assets, with a 1.4x Uniform P/B. At these levels, the market has fairly muted expectations for the firm, but management may be concerned about tariff-related headwinds, operating margin, and costs.Specifically, management may lack confidence in their ability to mitigate tariff headwinds, and they may be concerned about the effectiveness of their cost savings measures. Furthermore, they may be concerned about further erosion to their operating margin, and they may lack confidence in their ability to reverse recent operating profit declines. Finally, they may lack confidence in their ability to improve their online shopping experience.
Lumber Liquidators Holdings is a holding company. Through its subsidiaries, the company engages in business as a multi-channel retailer of hard-surface flooring, and hard-surface flooring improvements and accessories, operating as a single operating segment. The company provides exotic and domestic hardwood species, engineered hardwood, laminate, resilient vinyl, waterproof vinyl plank and porcelain tile flooring direct to the consumer. The company features the renewable flooring products, bamboo and cork, and provides a selection of flooring improvements and accessories, including moldings, noise-reducing underlayment, adhesives and flooring tools. The company also provides in-home delivery and installation services.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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