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The risk of investing in the stock market is a systematic crash. This is when all the stock prices start falling around the same time. But this risk is also an opportunity for those that understand the fickle nature of the market. High quality, proven companies tend to stick around in the long run, although their share price may be temporarily impacted by a crash. This is the best time to buy stocks like Floor & Decor Holdings, Inc. at a discount.
Floor & Decor Holdings, Inc. operates as a multi-channel specialty retailer of hard surface flooring and related accessories. Founded in 2000, and led by CEO Thomas Taylor, the company now has 4.61k employees and with the stock’s market cap sitting at US$3.2b, it comes under the mid-cap category. Size matters. The bigger the company is, the more well-resourced it is. The more money it produces from its operations which means it is less reliant on external funding. When times are bad in the market, being self-sufficient is extremely important as you can continue to operate at your own pace. Therefore, large cap companies are a great bet to invest in when you’re heading to the bottom of the cycle.
Currently Floor & Decor Holdings has US$146m on its balance sheet, which requires regular interest payments. This requires the business to have enough cash to meet these upcoming interest expenses. With an interest coverage ratio of 16.52x, Floor & Decor Holdings produces sufficient earnings (EBIT) to cover its interest payments. Anything above 3x is considered safe practice. Moreover, its cash flows from operations copiously covers it debt by 116%, which is higher than the bare minimum requirement of 20%. Its cash and short-term investment is also sufficient to cover other upcoming liabilities, which means FND is financially robust in the face of a volatile market.
FND’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 49%, beating the industry growth rate of 8.1%. It has also returned an ROE of 26% recently, above the industry return of 14%. Characteristics I value in a long term investment are proven in Floor & Decor Holdings, and I can continue to sleep easy at night with the stock as part of my portfolio.
Next Steps:Based on these three factors, FND makes for a strong long-term investment in the face of a fickle stock market. If you’re a risk averse investor, lining your portfolio with proven companies you’re willing to buy more and more of as the price falls, is a good strategy to build your wealth over the long run. This is the beginning of your research, but before you decide to buy FND, I highly urge you to understand more about the company, in particular, in these following areas:
- Future Outlook: What are well-informed industry analysts predicting for FND’s future growth? Take a look at our free research report of analyst consensus for FND’s outlook.
- 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.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.