NEW YORK (TheStreet) -- Lumber Liquidators'(LL) - Get Report stock was halted ahead of trading Monday following a CBS(CBS) - Get Report broadcast of 60 Minutes on Sunday that alleged the U.S. hardwood flooring retailer knowingly sold Chinese-made laminate flooring with high levels of formaldehyde, a chemical linked to cancer.
During the pre-market session, Lumber Liquidators' stock was down around 25%. Now's not the time for investors to bottom-feed and try to play hero. Not only would a 25% decline send the shares to their three-year low, it would put the stock in a bearish territory that would be hard to recover from. Take a look at the chart.
The stock did resume trading on Monday and was recently down 21% to $40.72. With such a wide gap from the 52-week high of $110.52, short-sellers are now in control of the stock, which is also being driven down by panic selling.
Waiting for Lumber Liquidators to be cleared from the allegations can still cause some pain. That may take some more time than expected, and the stock can still fall to its 2011 low of around $14. And that may be too optimistic.
On 60 Minutes, correspondent Anderson Cooper spoke with Denny Larson, executive director of Global Community Monitor, a nonprofit group, and Richard Drury, an environmental attorney. Drury and Larson bought several containers of laminate flooring from wood-flooring retailers in California, including Lumber Liquidators, which were then sent to three labs for testing.
According to the labs' reports, the Chinese-made laminate flooring products had the highest formaldehyde levels the labs have seen, exceeding California emissions standards.
Drury said that the company's Chinese-made laminate flooring emitted formaldehyde that was six to seven times higher than what California allows.
High levels of formaldehyde can cause myeloid leukemia and other forms of cancer, as well as difficulty breathing and irritation of the eyes, nose and throat. And those risks occur even at low detected levels of formaldehyde, experts say.
Thomas Sullivan, chairman and founder of Toano, Va.-based Lumber Liquidators, said his company will investigate the claims of elevated formaldehyde levels.
Sullivan told 60 Minutes the tests weren't valid, adding that the law doesn't require his company to test its finished products as 60 Minutes did.
"Our goal is to sell a good product at a good price," Sullivan said on the show. "And we don't get the price by skimping on anything.
"We get the price by low overhead, huge volume and being very efficient at what we do. And we're never gonna sell something unsafe."
Sullivan's claims contradicts 60 Minutes' findings after the show sent a reporting team to China, posing as buyers with hidden cameras to investigate the mills that supply Lumber Liquidators.
The investigative team was told by mill workers that the company to save on costs does use core boards with higher levels of formaldehyde.
At all three mills, employees admitted to falsely labeling laminate flooring with CARB Phase 2 Compliant, referring to the California Air Resources Board, which sets standards for formaldehyde emissions in wood flooring. The label suggests the products were safe to use.
In short, investors should stay away from this stock. The news may be far from over, and the stock's decline will continue until the court of public opinion comes to verdict. And in the stock market, that's the supreme court.
At the time of publication, the author held no position in any of the stocks mentioned