Floor And Decor has gotten torched over the last six months - since December 2024, its stock price has dropped 31.7% to $73.63 per share. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Floor And Decor, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Floor And Decor Not Exciting?
Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons why there are better opportunities than FND and a stock we'd rather own.
1. Shrinking Same-Store Sales Indicate Waning Demand
Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).
Floor And Decor’s demand has been shrinking over the last two years as its same-store sales have averaged 6.8% annual declines.
2. Fewer Distribution Channels Limit its Ceiling
With $4.52 billion in revenue over the past 12 months, Floor And Decor is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers. On the bright side, it can grow faster because it has more white space to build new stores.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Floor And Decor historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9.1%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.
Final Judgment
Floor And Decor isn’t a terrible business, but it isn’t one of our picks. After the recent drawdown, the stock trades at 35.2× forward P/E (or $73.63 per share). This valuation tells us a lot of optimism is priced in - we think there are better investment opportunities out there. Let us point you toward a top digital advertising platform riding the creator economy.
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