Hedge fund manager Whitney Tilson has a new number for Lumber Liquidators: $9.
That's where the head of Kase Capital Management said he believes the stock of the embattled hardwood floor seller is headed — and that's before legal and regulatory costs hit.
Tilson has increased his bet against the company in the wake of an explosive CBS "60 Minutes" report Sunday night that claimed Chinese-made laminate flooring sold by the nation's largest hardwood flooring retailer contained unsafe levels of formaldehyde, a carcinogen.
Tilson said he has "added materially" to his short bet and it now accounts for 3.8 percent of his holdings, up from 3 percent before the report.
The CBS exposé, followed by US Sen. Bill Nelson's (D-Fla.) call for a federal probe, caused shares to fall 17 percent during the week, closing at $33.32 Friday.
The report showed undercover footage of a worker at one of its lumber mills in China who said the formaldehyde was used solely in Lumber Liquidators' flooring because it allowed it to be made on the cheap.
That helps explain how the Toano, Va.-based company managed to double profit margins in recent years, according to Tilson and other critics of the company.
"At the very least Lumber Liquidators now has to of course start sourcing its products legally," he said in an e-mail to The Post.
He also said the company's sales, which topped $1 billion last year, will take a "major, lasting hit" from the bad publicity.
Lumber Liquidators said its laminate flooring made in Chinese factories accounted for 11 percent of those sales. The company reiterated that it complies with California laws limiting formaldehyde. It also said it has never been cited by regulators and has a rigorous testing process.
Of course, the company would not have to admit to any wrongdoing to change its practices in China.
That's where Tilson says it is immediately vulnerable. He thinks 2015 earnings could be as low as $1.50 per share — not including the contingent liabilities — which is down from estimates of $2.74 per share before the scandal hit.
If it were traded like Herbalife, another short position of his, the company would be worth $9, or six times earnings.
Still, Tilson has given himself an out. When the stock hits $20, "I can re-evaluate," he said.
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