This Lumber Liquidators chart should've raised red flags for everyone who saw it
Back in 2013, Whitney Tilson, the founder of hedge fund Kase Capital, first considered shorting Lumber Liquidators when he noticed something odd about the company's profit margins. They were exploding, largely because of expanding gross margins, which means the company had a remarkable control of its costs.
"When you see a commodity business suddenly double its profit margins, that raises red flags," Tilson told Anderson Cooper in an interview on "60 Minutes." "It's almost unprecedented for a company."
Lumber Liquidators — Tilson's largest short position — was part of a "60 Minutes" investigation that aired Sunday. The report found that North America's largest specialty retailer of hardwood flooring appeared to be selling laminate flooring made in China that had levels of formaldehyde beyond those allowed by California law.
Tilson was the one who first brought the story to "60 Minutes." He later wrote in an email that he was even more convinced the company's stock was a "zero." The stock is getting hammered.
Here's a chart from Lumber Liquidators breaking down profit margins. Tilson used it in his case against the company.
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