Lumber Liquidators (NYSE:LL) last week made headlines after federal authorities raided the company’s Virginia headquarters in connection with an investigation of the wood products the company imports. To put it mildly, it was a setback for the Virginia-based company.

The raid by agents from the U.S. Immigrations and Custom Enforcement and the Fish and Wildlife Service was related to the importation of protected wood from the habitat of the endangered Siberian Tiger, according to Bloomberg News.  At issue is whether Lumber Liquidators violated the Lacey Act, which is designed among other things to curb illegal logging under a 2008 amendment.  It carries penalties of as much as $500,000 per violation.  Several law firms have issued press releases indicating that they may pursue class-action lawsuits in connection with the raid.

Unfortunately for shareholders some Lumber Liquidators’ customers are also unhappy, which could be an issue that prevents investors on the sidelines from putting their money to work. The Better Business Bureau has received nearly 300 complaints against the hardwood flooring retailer in the past three years, most of which were related to problems with the product, according to its website.  Lumber Liquidators has an A+ rating with the non-profit, which indicates that in its view the company has made a good faith effort to resolve customer complaints. 

A decade or so ago, Lumber Liquidators made good products, which home improvement television host Bob Villa installed in one of his houses.  Then after the company expanded, its products began to suffer and customers were treated poorly, according to

“Most (customers) were advertised product that was never available, or they were being put off time and time again, or received no calls about the orders they paid for up front,” the website says.  “Sure, any company that does the kind of volume should be expected to see complaints, but they escalated too far.”

The views on HardwoodInstaller were backed up by scathing comments left by some consumers on ReselllerRatings.  "Their 100-million-year warranties mean nothing," said one consumer on the site. A call to the company's investor relations department was met with a message stating that company was in a pre-earnings quiet period and not able to comment.

Expectations for Lumber Liquidators remain high heading into the company’s earnings report later this month.  Revenue in the company’s September quarter is expected to increase 18.4% and 17.8% in the sequent period. The stock, however, is expensive and trades at a price-to-earnings ratio topping 47, a premium to both Home Depot (22.4) and Lowe’s  (27.9). The stock is selling ahead of its 52-week price target  of $104.44.

Bottom line

Given the uncertainties created by the federal raid and its customer service issue, investors should find other places to invest their money.

---Follow Jonathan Berr on Twitter@jdberr and or at Berr’s World.

Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  9. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center