Unveiling Floor & Decor Holdings (FND)'s Value: Is It Really Priced Right? A Comprehensive Guide

Discovering the intrinsic value of Floor & Decor Holdings Inc (FND) using the proprietary GF Value methodology

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On November 03, 2023, the stock of Floor & Decor Holdings Inc (FND, Financial) recorded a daily loss of -6.36 %, and a 3-month loss of -26.62%. Despite the recent losses, the company posted Earnings Per Share (EPS) of 2.67. But is the stock significantly undervalued? This article aims to provide a comprehensive valuation analysis of Floor & Decor Holdings (FND) to answer this question. Let's delve in.

Company Overview

Floor & Decor Holdings Inc operates as a specialty retailer in the hard surface flooring market, offering a range of tile, wood, laminate, and natural stone flooring products. The company appeals to professional installers, commercial businesses, DIY customers, and those who buy the products for professional installation. With a significant presence in the US and an e-commerce platform, Floor & Decor Holdings has carved a niche for itself in the flooring industry.

Despite a current market price of $79.52, the GF Value, a proprietary measure of intrinsic value, estimates the fair value of Floor & Decor Holdings (FND, Financial) at $132.75. This discrepancy suggests that the stock may be significantly undervalued. Let's explore this further.

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Understanding the GF Value

The GF Value is a unique valuation method that considers historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on the summary page provides an overview of the fair value that the stock should ideally trade at.

If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Based on this methodology, Floor & Decor Holdings stock appears to be significantly undervalued at its current price of $79.52 per share.

Given the significant undervaluation, the long-term return of Floor & Decor Holdings is likely to be much higher than its business growth.

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Examining the Financial Strength

Investing in companies with poor financial strength can lead to a high risk of permanent capital loss. Hence, it's crucial to review a company's financial strength before purchasing shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Floor & Decor Holdings has a cash-to-debt ratio of 0, ranking worse than 0% of 1106 companies in the Retail - Cyclical industry. However, its overall financial strength is 6 out of 10, indicating fair financial health.

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Profitability and Growth

Investing in profitable companies, especially those with consistent profitability over the long term, is usually less risky. Floor & Decor Holdings has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $4.40 billion and Earnings Per Share (EPS) of $2.67. Its operating margin is 8.79%, which ranks better than 74.26% of 1115 companies in the Retail - Cyclical industry. Overall, the profitability of Floor & Decor Holdings is ranked 9 out of 10, indicating strong profitability.

Growth is a critical factor in the valuation of a company. Floor & Decor Holdings's 3-year average revenue growth rate is better than 87.79% of 1048 companies in the Retail - Cyclical industry. The company's 3-year average EBITDA growth rate is 32.2%, ranking better than 82.57% of 895 companies in the same industry.

ROIC vs WACC

Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another way to assess profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, the company is creating value for shareholders. For the past 12 months, Floor & Decor Holdings's ROIC is 8.9, and its cost of capital is 11.82.

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Conclusion

In conclusion, the stock of Floor & Decor Holdings appears to be significantly undervalued. The company's financial condition is fair, its profitability is strong, and its growth ranks better than 82.57% of 895 companies in the Retail - Cyclical industry. To learn more about Floor & Decor Holdings stock, you can check out its 30-Year Financials here.

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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure