Floor & Decor Holdings, Inc. (FND - Get Rating) operates as a multi-channel specialty retailer and commercial flooring distributor of hard surface flooring and related accessories. FND’s stores offer tile, wood, laminate, vinyl, natural stone flooring products, decorative and installation accessories.

It has 166 warehouse-format stores and five design studios in 34 states. FND has recently announced the opening of several new stores.

On June 30, 2022, FND announced the launch of its newest location in West Hartford, Connecticut. In the same month, FND launched itself in Wilmington, North Carolina. It also launched its 85,000 square-foot Floor & Decor warehouse store and design center in Parkville, Maryland.

However, FND lost 16.5% in June, closing the last trading session at $71.55. It has lost 32.3% over the past year and 45% year-to-date.

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

Housing Market Situation Raising Concerns

Home prices have soared due to pandemic-fueled demand over the past two years, boding well for home improvement stocks. With rising mortgage rates, the once red-hot housing market is cooling off. The rising rates are pushing out entry-level buyers from the market. The housing market witnessed a fourth straight monthly drop in sales in May and declining affordability.

“Existing home sales should continue to slow over the course of the year as mortgage rates move higher,” said David Berson, chief economist at Nationwide in Columbus, Ohio. Existing home sales fell to the lowest level since June 2020, while home resales tumbled 8.6% year-on-year in May. The housing market slowdown might hamper FND’s prospects.

Mixed Financials

For the first quarter ended March 31, 2022, FND’s net sales came in at $1.03 billion, up 31.5% year-over-year. However, its adjusted net income and adjusted EPS decreased marginally year-over-year to $71.63 million and $0.67, respectively. Moreover, its cash and cash equivalents came in at $31.83 million, down 91% year-over-year.

Weak Momentum

FND demonstrates significantly weak momentum. Its closing price is currently trading below its 50-day moving average of $73.12 and 200-day moving average of $103.32. Moreover, it is trading 51% below its 52-week high of $145.89.

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.

FND has a Value grade of D, consistent with its higher-than-industry valuation multiples.

The stock has a C grade for Stability, in sync with its 24-month beta of 1.61.

In the 63-stock Home Improvement & Goods industry, FND is ranked #56. 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 continues to expand its footprint. However, the company’s weak bottom line is concerning. Also, the current housing market situation could further lead to its stock price declining. 

And the stock looks overvalued at its current price. In terms of forward EV/S, FND’s 2.08x is 100.8% higher than the industry average of 1.03x. Also, its forward P/S of 1.75x is 103.2% higher than the industry average of 0.86x. So, it is 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, Bassett Furniture Industries, Incorporated (BSET - Get Rating), which has an overall A (Strong Buy) rating, and Builders FirstSource, Inc. (BLDR - Get Rating), Masonite International Corporation (DOOR - Get Rating), and Mohawk Industries, Inc. (MHK - Get Rating), which have an overall B (Buy) rating.

FND shares were trading at $69.43 per share on Wednesday afternoon, down $2.12 (-2.96%). Year-to-date, FND has declined -46.60%, versus a -18.59% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

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. More...

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