Lumber Liquidators (LL, Financial) stock surged 99% in 2017 after suffering a turbulent two years due to a scandal involving its laminate flooring in China that sent its stock plunging to $11.50 per share from nearly $120.Â
But the company's stock pulled back 5% in the trailing five-day period and drifted 9% since the start of the year to $29.40 Wednesday morning. The stock declined despite analysts' forecasts of a rise in earnings per share to 8 cents from last year's loss per share of 93 cents, according to Yahoo Finance.Â
Rallies in 2017 were due to impressive earnings, with particular strength demonstrated in its second-quarter report. Anticipated earnings pushed the stock up 50% in the first half of the year and even higher after the earnings release.
The rally would be short-lived because the stock – still posting an impressive 99% increase on the year – suffering from a surprise third-quarter loss, primarily due to increased expenditures.
Despite the drain, the flooring giant still posted a 5.4% increase in revenue and 3.8% increase in sales at $257.2 million. It also generated a $19 million loss primarily due to legal expenses.
The performance still disappointed investors, who were expecting sales to reach $261.8 million with earnings per share of 2 cents.
Third quarter optimism
Lumber Liquidators will release third-quarter earnings on Feb. 20.
Investors are concerned that legal and professional fees, due to past incidents and class-action lawsuits, will continue to harm the company's performance.
The company's stock did post five straight quarters of positive comparable-store sales, with operations margins and gross margins both improving on an adjusted basis. Long-term investors in the company can use the pullback in the company's stock to add to their positions.
The U.S. housing market also posted an impressive year in 2017, with the market expected to continue to increase in 2018. Homebuilding is expected to hit record highs as tax cuts are implemented.
Demand and optimism in the market looked strong in the first month of 2018 despite poor housing starts in December. Freddie Mac even claimed that 2017 was the market's best year in a decade.
Lumber Liquidators is direct beneficiary of a strong housing market.
Entry-level home construction will be the primary focus of home construction this year due to a shortage in affordable housing. Homebuilding sentiment is near 18-year highs, helping strengthen Lumber Liquidators' outlook.
Zacks reports the company's stock has a "buy" rating from several investment firms an average price objective near $39 a share.
Zacks moved the company's stock to a Buy rating.Â
Lumber Liquidators has a market cap of $837 million with a 52-week high of $41.33 a share and 52-week low of $15.25 a share.Â
Disclosure: The author has no stakes in the listed equities.
