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Value investor Whitney Tilson has turned bullish on Lumber Liquidators (LL), years after shorting the Virginia-based specialty hardwood retailer's stock.
A few years ago, the company landed in hot water for using potentially poisonous materials in their products. At the time, Tilson became a bear on the stock — but has now completely changed his tune.
"It's very rare. It's only happened five times in my 20-year investing career where I ever go long something I was once short," the former hedge fund manager told Yahoo Finance.
In early 2015, Tilson appeared on "60 Minutes" with Anderson Cooper during an investigation that found Lumber Liquidators appeared to be selling laminate flooring from China with high levels of formaldehyde. This raised health and safety concerns around the product.
At the time, the company said that "60 Minutes" got it “wrong" and that they planned to "fight these false attacks on all fronts."
Soon after, the stock tanked in the following months, and a handful of senior management departed, including the unexpected departure of then-CEO Robert Lynch.
By December 2015, Tilson successfully exited his short position after the stock dropped by about 90%.
Now, Tilson — who now runs Empire Financial Research — pitched Lumber Liquidators as his first long idea.
"A few months ago, they announced they had finally settled all of the class action lawsuits, the regulatory issues that had plagued the company,” he said.
“And, the fact that the company survived this onslaught of lawsuits and had, in fact, poisoned their customers shows it's actually pretty good business. Yet, the stock is sitting here today at basically an all time low,” Tilson said.
Of course, one of the headwinds facing the stock at the moment is the U.S-China trade war. Tariffs are hurting Lumber Liquidators, because the company sources a lot of its product from China.
Not only is Tilson an investor, but he's also a customer of the company.
"I actually think the company has cleaned up its act. I, in fact, just installed Lumber Liquidators Flooring in my apartment last month. It's beautiful. I love it,” the investor said.
“And, I feel like it's a totally safe product because all the people who are associated with the formaldehyde scandal have long since left the company,” Tilson added. “It's a really cheap beaten down stock, and there aren't many of those that have a good business in today's market."
Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.