The Home Depot, Inc. (HD), Lowe’s Companies, Inc. (LOW), Lumber Liquidators Holdings Inc (LL): The Ugly Housing Report – Should You Sell?

Lumber Liquidators Holdings Inc (NYSE:LL)’ stock has been on a tear as of late and trades at $89.80 versus a 52-week low of $26.52.  The current P/E is 45.5 versus a five-year average of 24.9.

However, the company’s product sales mix has been moving toward lower revenue/margin products. The company sells solid and engineered hardwoods, laminates, and bamboo, cork and resilient flooring options. Solid hardwoods are the highest-revenue and margin product, and remain the majority of sales.

The problem is that hardwood sales have not kept up with overall sales growth. In 2012, they represented 47% of sales versus 50% of sales in 2011 and 54% of sales in 2010.  If the shift in product mix continues this way, it will impose a strain on margins.

Foolish opinion

It remains to be seen if the housing report released last week was just a hiccup or a turning point for housing. As The Home Depot, Inc. (NYSE:HD) stated, its success was driven by the housing recovery. If housing slows down, so should Home Depot’s strong growth.

Lowe’s Companies, Inc. (NYSE:LOW) has been having ongoing financial issues at a time when its main competitor is enjoying great success. Lumber Liquidators Holdings Inc (NYSE:LL) is pricing in an enormous amount of growth, but margins could begin to slip as the product mix continues to move to less profitable products. At current valuation levels, these stocks seem to price in all potential growth opportunities.

The article The Ugly Housing Report – Should You Sell? originally appeared on Fool.com and is written by John Timmes.

John Timmes has no position in any stocks mentioned. The Motley Fool recommends Home Depot, Lowe’s, and Lumber Liquidators. The Motley Fool owns shares of Lumber Liquidators. John is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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