Lumber Liquidators Holdings Inc.’s stock plunge over the past week, fueled by allegations of excessive formaldehyde in its flooring, can be traced back to a blog post from an obscure 25-year-old short seller.
Xuhua Zhou, who had dropped out of UCLA’s doctoral program in finance and become an individual investor, took an interest in Lumber Liquidators about two years ago.
After seeing a surge in the company’s gross profit margin, Zhou learned that it sourced some products from China. That raised his suspicions that safety might have been skirted in pursuit of lower costs, he said in an interview.
Zhou, who was born and raised in China, already had experience researching suppliers in the country.
His digging ultimately led to lawsuits, a “60 Minutes” report and accolades from the well-known short seller Whitney Tilson, who also bet against Lumber Liquidators.