Floor & Decor (FND) is a specialty retailer of hard surface flooring products, operating a rapidly growing national store base. Despite its growth trajectory, I believe the current valuation overstates the durability of FND’s business model in a weakening housing and macroeconomic environment.
While FND has delivered impressive topline growth over the past decade by capitalizing on a fragmented flooring market, I believe the company is entering a more challenging phase. I recommend a short position in FND, based on deteriorating macroeconomic conditions, aggressive store growth that hides declining same-store sales, and an increasingly competitive landscape that compresses margin potential. My base case suggests a fair value of $39.89/share, implying downside of 40.5% from current levels.