NEW YORK (TheStreet) -- Shares of Lumber Liquidators (LL) are falling 1.96% to $25.55 in Tuesday's pre-market trading after analysts at Cantor Fitzgerald downgraded the company to "hold" from "buy" and decreased their price target to $26 from $42.
Analysts said that they believe there are too many regulatory and legal risks to justify the higher rating and that their near-term view has become much cloudier.
"We think the overall negative PR continues to gain momentum, making it extremely difficult for us to gauge customers' willingness to shift into other product categories," they said.
The analyst action comes after the hardwood flooring retailer announced earlier this month they were stopping all sales of Chinese laminates, after a CBS '60 Minutes' report in early March alleged that laminates from China contained far higher than acceptable levels of formaldehyde, exceeding California emission standards.
However, analysts added, "We don't think LL's business model is broken, and we continue to believe its value proposition and broad assortment will drive a sales recovery and market share gains over the long term."
TheStreet Ratings team rates LUMBER LIQUIDATORS HLDGS INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate LUMBER LIQUIDATORS HLDGS INC (LL) a HOLD. The primary factors that have impacted our rating are mixed, some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Despite its growing revenue, the company underperformed as compared with the industry average of 12.1%. Since the same quarter one year prior, revenues slightly increased by 5.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- LL's debt-to-equity ratio is very low at 0.06 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.31 is very weak and demonstrates a lack of ability to pay short-term obligations.
- 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. In comparison to the other companies in the Specialty Retail industry and the overall market, LUMBER LIQUIDATORS HLDGS INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- Net operating cash flow has decreased to $13.16 million or 40.98% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full analysis from the report here: LL Ratings Report