NEW YORK (TheStreet) -- Shares of Lumber Liquidators Holdings (LL) - Get Lumber Liquidators Holdings, Inc. Report are surging 21.12% to $17.09 in morning trading on Tuesday after a short seller backed off his claim that senior management knew the company was selling flooring with high levels of formaldehyde.

Whitney Tilson called the company "sloppy and naïve, but not evil." Tilson, who founded hedge fund Kase Capital Management, said he received new information that leads him to believe that the company genuinely thought the product was safe and compliant.

The Toana, VA-based retailer of hardwood flooring has been in trouble ever since a 60 Minutes report in March alleging they sold Chinese-made flooring with higher levels of formaldehyde than permitted under California standards, CNBC reports. The stock plunged more than 70% in the aftermath of the allegations, Bloomberg noted.

The report also prompted a U.S. Consumer Product Safety commission investigation, according to Bloomberg.

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"If there are no 'smoking gun' documents/emails, then the doomsday scenario for the company (and the stock) is less likely, so I covered my short position today," Tilson wrote.

Separately, recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:

We rate LUMBER LIQUIDATORS HLDGS INC as a Sell with a ratings score of D+. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity, poor profit margins and generally disappointing historical performance in the stock itself.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • LUMBER LIQUIDATORS HLDGS INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, LUMBER LIQUIDATORS HLDGS INC reported lower earnings of $2.31 versus $2.77 in the prior year. For the next year, the market is expecting a contraction of 169.0% in earnings (-$1.60 versus $2.31).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Specialty Retail industry. The net income has significantly decreased by 153.9% when compared to the same quarter one year ago, falling from $15.73 million to -$8.48 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Specialty Retail industry and the overall market, LUMBER LIQUIDATORS HLDGS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for LUMBER LIQUIDATORS HLDGS INC is currently lower than what is desirable, coming in at 30.07%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -3.59% is significantly below that of the industry average.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 75.95%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 153.44% compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
  • You can view the full analysis from the report here: LL