In 2017, home improvement retail chain Floor & Decor Holdings (NYSE: FND) went public. It only had about 70 locations and was still virtually unknown. And investors could have bought it at any time during the past eight years. But now it’s time to buy Floor & Decor stock like there’s no tomorrow.
Of course, that’s just an expression — there will be a tomorrow for Floor & Decor, and I believe it will be great for shareholders. That’s why I believe it’s worth the investment today. But when it comes to buying the stock at an attractive price, I don’t think that investors should necessarily wait until tomorrow, hoping for any entry point that’s better than this.
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The valuation is my third reason to buy Floor & Decor stock today. But first allow me to explain two other reasons why it’s a good buy right now.
1. An attractive business model
Before he passed away in 2023, Charlie Munger was renowned for being a great investor and one who was focused on business fundamentals. Therefore, when he praises a business model, it’s a big deal. And in one of his final interviews, Munger praised Floor & Decor.
There are two extremes in retail. One approach is to have a lot of little stores — GameStop fits in this category. It ended 2024 with over 3,200 locations, which is massive. But each location only had just over $1 million in annual sales.
The other approach is to have relatively few stores that handle massive volume, which is Floor & Decor’s business model and what Munger loved about it. It follows the same logic as one of his favorite businesses, Costco Wholesale.
Floor & Decor only has around 250 locations today and it only expects to have around 500 long term. But each is between 50,000 square feet and 80,000 square feet. And with $4.5 billion in overall trailing-12-month revenue, these 250 stores are certainly high volume.
High-volume stores can serve Floor & Decor by creating operating leverage, leading to strong profitability. It’s something to watch as the business grows.
2. Big plans ahead
As mentioned, Floor & Decor is looking to grow to at least 500 locations in coming years. Here in 2025, it’s looking to open 20 new stores, which is about 8% growth. But keep in mind that this growth is slow by this company’s standards. Given the economic uncertainty right now, management pulled back on this year’s plans.
Ordinarily, shareholders can expect Floor & Decor to open new locations at a faster rate as it expands toward its long-term goal. But opening new stores isn’t the only growth strategy. The company owns another business called Spartan Surfaces, which does flooring installations for commercial properties, such as hospitals.
This is a great ancillary business idea for Floor & Decor. Circling back to the business model, there’s a ceiling to the opportunity with its retail locations — it doesn’t want a lot of low-volume stores. But it can still leverage its infrastructure with this ancillary commercial business.
Between sales growth, new stores, and newer ideas, I believe that Floor & Decor can double its revenue in the next five years or so. That’s a good opportunity for investors.
3. The aforementioned value
It’s widely agreed that Home Depot is a great business, but even the most bullish shareholders would have to concede that its growth prospects are somewhat slim. Floor & Decor’s growth outlook is much better. And yet, in spite of this, the price-to-sales (P/S) valuation for Home Depot stock is much more expensive.
HD PS Ratio data by YCharts
One might object to my valuation comparison, pointing to Home Depot’s superior profit margins, which is true. That said, a growth company such as Floor & Decor shouldn’t be expected to be optimized for profits in the same way as a mature business such as Home Depot.
During the pandemic-fueled home improvement spending boom, Floor & Decor had a profit margin of over 8%, which is about what Home Depot’s margin is now. Therefore, the company is capable of better — it’s proved it. And even during this period of sluggish flooring sales, it still has a profit margin of about 5%.
In other words, Floor & Decor stock is cheap when looking at its growth prospects. Those who think it should be cheaper because of its lower profit margins might not be seeing the whole picture.
I’ve long believed Floor & Decor is simple idea and yet a strong multibagger investment opportunity. That hasn’t changed. But now that this American stock is trading at one of its cheapest valuations ever, and even at a discount to more mature businesses such as Home Depot, I believe now is the time to buy Floor & Decor stock like there’s no tomorrow.
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Jon Quast has positions in Floor & Decor. The Motley Fool has positions in and recommends Costco Wholesale and Home Depot. The Motley Fool has a disclosure policy.
