The Shine Is Off Lumber Liquidators

Lumber Liquidators (NYSE:LL) last week made headlines after federal authorities raided the company's Virginia headquarters in connection with an investigation of the wood products the company imports. To put it mildly, it was a setback for the Virginia-based company.

The raid by agents from the U.S. Immigrations and Custom Enforcement and the Fish and Wildlife Service was related to the importation of protected wood from the habitat of the endangered Siberian Tiger, according to Bloomberg News. At issue is whether Lumber Liquidators violated the Lacey Act, which is designed among other things to curb illegal logging under a 2008 amendment. It carries penalties of as much as $500,000 per violation. Several law firms have issued press releases indicating that they may pursue class-action lawsuits in connection with the raid.

Unfortunately for shareholders some Lumber Liquidators' customers are also unhappy, which could be an issue that prevents investors on the sidelines from putting their money to work. The Better Business Bureau has received nearly 300 complaints against the hardwood flooring retailer in the past three years, most of which were related to problems with the product, according to its website. Lumber Liquidators has an A+ rating with the non-profit, which indicates that in its view the company has made a good faith effort to resolve customer complaints.

A decade or so ago, Lumber Liquidators made good products, which home improvement television host Bob Villa installed in one of his houses. Then after the company expanded, its products began to suffer and customers were treated poorly, according to HardwoodInstaller.com.

"Most (customers) were advertised product that was never available, or they were being put off time and time again, or received no calls about the orders they paid for up front," the website says. "Sure, any company that does the kind of volume should be expected to see complaints, but they escalated too far."

The views on HardwoodInstaller were backed up by scathing comments left by some consumers on ReselllerRatings. "Their 100-million-year warranties mean nothing," said one consumer on the site. A call to the company's investor relations department was met with a message stating that company was in a pre-earnings quiet period and not able to comment.

Expectations for Lumber Liquidators remain high heading into the company's earnings report later this month. Revenue in the company's September quarter is expected to increase 18.4% and 17.8% in the sequent period. The stock, however, is expensive and trades at a price-to-earnings ratio topping 47, a premium to both Home Depot (22.4) and Lowe's (27.9). The stock is selling ahead of its 52-week price target of $104.44.

Bottom line

Given the uncertainties created by the federal raid and its customer service issue, investors should find other places to invest their money.

---Follow Jonathan Berr on Twitter@jdberr and or at Berr's World.

Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.