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Floor & Decor Holdings, Inc. (FND): Pay Attention When Abdiel Capital Loves A Stock

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Floor & Decor Holdings, Inc. (NYSE:FND).

Is Floor & Decor Holdings, Inc. (NYSE:FND) a buy here? The best stock pickers are getting less bullish. The number of bullish hedge fund positions retreated by 4 lately. Our calculations also showed that FND isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). FND was in 23 hedge funds’ portfolios at the end of March. There were 27 hedge funds in our database with FND holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Colin Moran Abdiel Capital

Colin Moran of Abdiel Capital Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the latest hedge fund action surrounding Floor & Decor Holdings, Inc. (NYSE:FND).

What does smart money think about Floor & Decor Holdings, Inc. (NYSE:FND)?

At the end of the first quarter, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -15% from the previous quarter. On the other hand, there were a total of 31 hedge funds with a bullish position in FND a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Among these funds, Abdiel Capital Advisors held the most valuable stake in Floor & Decor Holdings, Inc. (NYSE:FND), which was worth $117 million at the end of the third quarter. Abdiel Capital is one of the under-the-radar hedge funds that have an amazing track record. On the second spot was Two Creeks Capital Management which amassed $96.4 million worth of shares. Joho Capital, Broad Bay Capital, and Marshall Wace LLP were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Joho Capital allocated the biggest weight to Floor & Decor Holdings, Inc. (NYSE:FND), around 19.92% of its 13F portfolio. Billings Capital Management is also relatively very bullish on the stock, designating 14.16 percent of its 13F equity portfolio to FND.

Since Floor & Decor Holdings, Inc. (NYSE:FND) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s easy to see that there is a sect of money managers that elected to cut their positions entirely by the end of the first quarter. At the top of the heap, Dmitry Balyasny’s Balyasny Asset Management dropped the biggest investment of all the hedgies tracked by Insider Monkey, totaling an estimated $20.8 million in stock, and Jack Woodruff’s Candlestick Capital Management was right behind this move, as the fund dumped about $20.6 million worth. These moves are important to note, as total hedge fund interest was cut by 4 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Floor & Decor Holdings, Inc. (NYSE:FND) but similarly valued. We will take a look at Empire State Realty Trust Inc (NYSE:ESRT), Seaboard Corporation (NYSE:SEB), Littelfuse, Inc. (NASDAQ:LFUS), and Globant SA (NYSE:GLOB). This group of stocks’ market caps are similar to FND’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ESRT 16 151926 -2
SEB 15 108625 -3
LFUS 22 218011 1
GLOB 17 81232 -1
Average 17.5 139949 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $400 million in FND’s case. Littelfuse, Inc. (NASDAQ:LFUS) is the most popular stock in this table. On the other hand Seaboard Corporation (NYSE:SEB) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Floor & Decor Holdings, Inc. (NYSE:FND) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 13.9% in 2020 through June 10th but still managed to beat the market by 14.2 percentage points. Hedge funds were also right about betting on FND as the stock returned 77.1% so far in Q2 (through June 10th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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