Floor and Decor (FND) is ‘Significantly Undervalued,’ Blue Hawk Investment Group Believes

Blue Hawk Investment Group, an investment management firm, published its fourth-quarter 2020 Investor Letter – a copy of which can be downloaded here. A return of 7.48% was recorded by the fund for the Q4 of 2020, below its S&P 500 benchmark that delivered an 11.69% return. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Blue Hawk Investment Group, in their Q4 2020 Investor Letter, said that Floor & Decor Holdings, Inc. (NYSE: FND) is one of the top contributors for their long book. Floor & Decor Holdings, Inc. is a hard surface flooring and related accessories retailer company that currently has an $11.1 billion market cap. For the past 3 months, FND delivered a decent 48.15% return and settled at $103.57 per share at the closing of February 5th.

Here is what Blue Hawk Investment Group has to say about Floor & Decor Holdings, Inc. in their investor letter:

“Floor & Decor contributed almost 500 bps to performance as low interest rates buoyed the housing market. The company briefly paused their 20% annual unit store growth plans amid the pandemic, then reiterated their intention to resume expansion in 2021. With 20% store growth and mid to high single digit comps, we think FND can be a mid to high twenties or greater top-line grower with margin upside for years to come. We think the stock remains significantly undervalued today. We originally started buying the stock around $27 in 2018, a 4x at today’s prices, and we would not be surprised if this stock doubled again over the next 2-3 years. We discuss later in the letter why we may make this our biggest position going forward.

 FND has become a top weight, so we thought it worthwhile to address in the letter, adding to our previous commentaries around the name. We have a very high bar for the companies in our portfolio – typically best-in-class management teams, large addressable opportunities, attractive cash flow characteristics, and defensible competitive advantages with a 20% or greater IRR – so how do we select FND as a favorite? What gives us the conviction?

First, the external environment in which the company operates is highly supportive due to low interest rates, home improvement budgets increasing with more time spent working from home, and the likely improvement in China/US relations with the new administration potentially easing tariff pressure on flooring imports (~30% sourced from China). Next, the competitive landscape is very positive as well, due to FND’s niche focus and cost advantages driven by their direct to manufacturer supply chain – competitors use broker intermediaries – as well as their unique store model. Furthermore, the opportunity is still very early as stores are mainly in regional clusters with low penetration levels, and FND is positioned to move into tangential products. Finally, FND has an A+ management team that we respect and entrust as stewards of capital.

From a stock perspective, FND is entering the sweet spot for growth companies, the $10B – $20B market capitalization range. Most importantly, the stock is significantly undervalued in our view. To summarize, the qualitative and quantitative stories are very compelling, with external factors highly supportive and an attractive valuation. We have high conviction in the company and the setup, and we find ourselves excited to partner with a great team. “


Just this month, we published an article of FAM Funds’ bullish investment thesis on Floor & Decor Holdings, Inc. (NYSE: FND). In our recent data, the company was in 42 hedge fund portfolios. Its all time high statistics is 44. FND delivered a huge 114.06% return in the past 12 months.

Our calculations show that Floor & Decor Holdings, Inc. (NYSE: FND) does not belong in our list of the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 216% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 121 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

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Disclosure: None. This article is originally published at Insider Monkey.