Floor & Decor Holdings, Inc. (NYSE:FND): Exploring Free Cash Flows

Floor & Decor Holdings, Inc. (NYSE:FND) shareholders, and potential investors, need to understand how much cash the business makes from its core operational activities, as well as how much is invested back into the business. What is left after investment, determines the value of the stock since this cash flow technically belongs to investors of the company. I’ve analysed below, the health and outlook of Floor & Decor Holdings’s cash flow, which will help you understand the stock from a cash standpoint. Cash is an important concept to grasp as an investor, as it directly impacts the value of your shares and the future growth potential of your portfolio.

See our latest analysis for Floor & Decor Holdings

What is Floor & Decor Holdings’s cash yield?

Floor & Decor Holdings generates cash through its day-to-day business, which needs to be reinvested into the company in order for it to continue operating. What remains after this expenditure, is known as its free cash flow, or FCF, for short.

I will be analysing Floor & Decor Holdings’s FCF by looking at its FCF yield and its operating cash flow growth. The yield will tell us whether the stock is generating enough cash to compensate for the risk investors take on by holding a single stock, which I will compare to the market index. The growth will proxy for sustainability levels of this cash generation.

Free Cash Flow = Operating Cash Flows – Net Capital Expenditure

Free Cash Flow Yield = Free Cash Flow / Enterprise Value

where Enterprise Value = Market Capitalisation + Net Debt

Along with a positive operating cash flow, Floor & Decor Holdings also generates a positive free cash flow. However, the yield of 1.2% is not sufficient to compensate for the level of risk investors are taking on. This is because Floor & Decor Holdings’s yield is well-below the market yield, in addition to serving higher risk compared to the well-diversified market index.

NYSE:FND Balance Sheet Net Worth, April 1st 2019
NYSE:FND Balance Sheet Net Worth, April 1st 2019

Does Floor & Decor Holdings have a favourable cash flow trend?

Can Floor & Decor Holdings improve its operating cash production in the future? Let’s take a quick look at the cash flow trend the company is expected to deliver over time. In the next couple of years, a double-digit growth in operating cash of 49% is expected. The future seems buoyant if Floor & Decor Holdings can maintain its levels of capital expenditure as well. Below is a table of Floor & Decor Holdings’s operating cash flow in the past year, as well as the anticipated level going forward.
Current +1 year +2 year +3 year
Operating Cash Flow (OCF) US$186m US$239m US$259m US$276m
OCF Growth Year-On-Year 29% 8.4% 6.6%
OCF Growth From Current Year 39% 49%

Next Steps:

The company’s low yield relative to the market index means you are taking on more risk holding the single-stock Floor & Decor Holdings as opposed to the diversified market portfolio, and being compensated for less. Though the high operating cash flow growth in the future could change this. Now you know to keep cash flows in mind, I recommend you continue to research Floor & Decor Holdings to get a more holistic view of the company by looking at:

  1. Valuation: What is FND worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether FND is currently mispriced by the market.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Floor & Decor Holdings’s board and the CEO’s back ground.
  3. Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.