Floor & Decor Holdings, Inc. (FND), which operates as a multi-channel specialty retailer and commercial flooring distributor of hard surface flooring and related accessories, belongs to the veteran investor Warren Buffett’s portfolio. As of June 30, 2022, Buffett’s holding company Berkshire Hathaway Inc. (BRK.A), held a 4.5% stake in FND.          

Despite securing a place in Buffett’s portfolio, FND doesn’t look well-positioned to perform well in the near term because of its weak fundamentals. Citigroup analysts have recently lowered their price target for FND from $112.00 to $89.00. Earlier, UBS Group also reduced their price target for the stock from $120.00 to $110.00.

FND has lost 2.3% over the past month to close the last trading session at $73.43. It has lost 42.5% year-to-date and 44.6% over the past year.

Here is what could shape FND’s performance in the near term:

Declining Bottom Line and Cash Balance

For the second quarter ended June 30, 2022, FND’s net income decreased marginally year-over-year to $81.83 million, while its EPS came in at $0.76, down marginally year-over-year.

Moreover, its cash and cash equivalents came in at $6.18 million for the period ended June 30, 2022, compared to $139.44 million for the period ended December 30, 2021.

Stretched Valuation

FND’s forward EV/Sales of 2.20x is 103.7% higher than the industry average of 1.08x. Its forward EV/EBITDA of 16.94x is 96.2% higher than the industry average of 8.63x. Also, its forward Price/Sales of 1.84x is 122.7% higher than the industry average of 0.83x, while its forward Price/Cash Flow of 16.95x is 62.9% higher than the industrial average of 10.41x.

POWR Ratings Reflect Bleak Prospects

FND has an overall rating of D, equating to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. FND has a D grade for Value, consistent with its higher-than-industry valuation multiples.

The stock has a D grade for Stability, in sync with its beta of 1.81.

In the 60-stock Home Improvement & Goods industry, FND is ranked #51. The industry is rated C.

Click here for the additional POWR Ratings for FND (Growth, Momentum, Sentiment, and Quality).

View all the top stocks in the Home Improvement & Goods industry here.

Bottom Line

FND’s bottom line and cash balance deteriorated in the second quarter. Despite being a Warren Buffet holding, FND has witnessed a freefall in 2022. Given the stock’s stretched valuation and poor stability, FND might be best avoided now.

How Does Floor & Decor Holdings, Inc. (FND) Stack Up Against its Peers?

While FND has an overall POWR Rating of D, one might consider looking at its industry peers, Acuity Brands, Inc. (AYI), which has an overall A (Strong Buy) rating, and Tile Shop Holdings, Inc. (TTSH), Bassett Furniture Industries, Incorporated (BSET), and Masonite International Corporation (DOOR), which have an overall B (Buy) rating.

FND shares were trading at $74.08 per share on Monday afternoon, down $0.69 (-0.92%). Year-to-date, FND has declined -43.02%, versus a -17.54% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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