Money Matters - Simplified

4-Star Stocks Poised to Pop: Lumber Liquidators

 Based on the aggregated intelligence of 170,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, hardwood flooring retailer Lumber Liquidators Holdings (NYSE: LL) earned a respected four-star ranking.

 

 With that in mind, let's take a closer look at Lumber Liquidators' business and see what CAPS investors are saying about the stock right now.

Lumber Liquidators facts

Headquarters (founded)

Toano, Va. (1994)

Market Cap

$660.3 million

Industry

Home improvement retail

Trailing-12-Month Revenue

$597.5 million

Management

CEO Jeffrey Griffiths (since 2006)

CFO Daniel Terrell (since 2006)

Return on Equity (average, past 3 years)

21.9%

Cash/Debt

$42.2 million / $0

Competitors

Lowe's Cos. (NYSE: LOW)

Home Depot (NYSE: HD)

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 93% of the 324 members who have rated Lumber Liquidators believe the stock will outperform the S&P 500 going forward. These bulls include BossMan2010 and BearishKW.

Just last month, BossMan2010 described Lumber Liquidators in purely bullish terms: "I like their business model. Low overhead, value pricing, high sales volume. It seem replicatable across the country and hard for regular distribution models to compete against."

Specifically, Lumber Liquidators buys flooring directly from mills and then passes the savings on to customers. This low-cost, middleman-cutting approach has driven a 22% average return on equity over the past three years, which easily bests that of home improvement giants Home Depot (15.2%) and Lowe's (12.7%). As the popularity of hardwood among homeowners continues to grow, CAPS member BearishKW thinks Lumber Liquidators is easily in the best position to capitalize:

It specializes in hardwood floors and undercutting Home Depot and Lowe's prices. ... It is able to do this because it deals directly with wholesale lumber companies, buys overstock from home builders, as well as any other parties with supply to unload ... and there were a lot of those parties back in 2008-2009. The best part about [Lumber Liquidators] is that Home Depot and Lowes don't even bother to compete with it. It would take too much work to deal directly with the lumber companies, and wood tiles are a tiny part of the big guys' business models. ... It's a multiple angle play on zero competition, early stage growth, recovery in housing, and people generally replacing their existing carpet with wood and tile.

© 2010 UCLICK L.L.C.