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Tilson: Why Lumber Liquidators Could Be The Next SodaStream

Wayne Duggan

Since Former hedge fund manager Whitney Tilson made a bullish call on Lumber Liquidators Holdings Inc (NYSE: LL) on April 18, the stock is down 44.8%.

Tilson recently doubled down on his bullish stance and said in his newsletter that Lumber Liquidators is reminiscent of the former home run investment SodaStream.

Lumber Liquidators Oversold?

In general, it's extremely difficult to time the exact bottom in a falling stock, Tilson said.

By definition, buying the dip will almost always result in some period of time where an investor is under water, he said. 

"During this time, you have to answer a tough question: Is your investment thesis still intact and you just got in a bit too early, or have you made a mistake and stumbled into a value trap?"

The pre-earnings sell-off in the stock was particularly puzzling in the absence of major news from the company, Tilson said. 

On Wednesday morning, Lumber Liquidators shares plunged another 13% after the company reported in-line earnings but missed consensus revenue estimates by about 1%. The company also cut its 2019 revenue guidance, citing rising costs due to U.S. tariffs on imported Chinese goods.

Tariffs and headwinds to the U.S. housing market are more than priced into the stock at this point, Tilson said. 

The Next SodaStream?

Lumber Liquidators reminds Tilson of SodaStream, another stock on which he took a bullish stance and was too early.

He made his bullish case for SodaStream back in April 2014 when the stock was trading at $35. The stock didn’t bottom until early 2016, when it hit $12, and Tilson was down more than 65%.

Tilson said he didn’t panic and always relied on his belief in the company’s fundamentals, including its 80% profit margins on carbon dioxide bottles.

“I never made it a huge position — as the stock declined, I'd buy it back to roughly a 4% weighting — because I knew that there was always the risk of a permanently bad outcome,” he said. 

SodaStream’s revenues and earnings finally reached an inflection point in 2016, and the company was famously acquired by PepsiCo (NYSE: PEP) in 2018 at a price of $144 per share. Tilson ultimately made more than a 300% return on his stake in just over four years, a reason for optimism among Lumber Liquidators investors.

Lumber Liquidators shares were down 12.01% at $7.25 at the time of publication Wednesday. 

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Latest Ratings for LL

Date Firm Action From To
May 2019 Upgrades Market Perform Outperform
Mar 2019 Initiates Coverage On In-Line
Jan 2019 Downgrades Buy Hold

View More Analyst Ratings for LL
View the Latest Analyst Ratings

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