Floor & Decor: A Contrarian Opportunity in the Tile of Underperformance

Floor & Decor Holdings (FND) has long been a standout player in the home improvement sector, leveraging its warehouse-style stores to dominate the hard-surface flooring market. Yet despite its consistent earnings trajectory and strategic adjustments, the stock has stumbled in recent years, creating a compelling misalignment between its financial performance and shareholder returns. Is this divergence a sign of overdone pessimism—or a buying opportunity in the making?

The EPS Story: Resilience Amid Declines

FND's earnings per share (EPS) have shown remarkable resilience in a challenging retail environment. In Q1 2025, diluted EPS stood at $0.45, a mere 2.2% dip from Q1 2024's $0.46—a far cry from the 28% year-over-year plunge seen in Q1 2024 compared to 2023. Full-year 2023 EPS totaled $2.32, down 17.7% from 2022 but still robust for a company navigating macroeconomic headwinds like housing market slowdowns and inflation. Management's guidance for fiscal 2025 projects EPS between $1.70 and $2.00, suggesting stabilization. Even at the midpoint of $1.85, this represents a 19.8% drop from 2023's $2.32, but the trajectory remains far less dire than the stock's performance implies.

Stock Performance: A Rocky Slide

While EPS has held up, the stock price has been anything but steady. After surging 60% in 2023—rebounding from a steep 2022 decline—FND's shares have since faced relentless pressure. By May 2025, the stock traded at $74.03, nearly 34% below its 2024 peak of $111.56. Analysts cite a 92% bearish sentiment, with short-term forecasts predicting further drops to $69.08 by June and long-term projections as low as $48.65 by 2030. This divergence between earnings and price suggests investors are pricing in a worst-case scenario, rather than FND's tangible progress.

Why the Misalignment?

The stock's slump stems from three key factors:
1. Macroeconomic Fears: Weak consumer spending and housing market stagnation have dampened demand for flooring. FND's comparable store sales fell 1.8% in Q1 2025, amplifying concerns about top-line growth.
2. Store Expansion Hesitation: Plans to open only 20 new stores in 2025 (down from 25) reflect cautious capital allocation, which investors may interpret as a lack of confidence.
3. Trade Tariff Headwinds: Ongoing tariffs on imported flooring materials have squeezed margins, despite cost-cutting measures like leaner inventory management.

Yet these challenges are neither unique to FND nor insurmountable. Competitors like Lowe's (LOW) and Home Depot (HD) face similar pressures, yet their stocks remain far less punished. FND's $11.27 billion market cap and $4.4 billion in annual revenue underscore its scale and durability in a fragmented market.

The Contrarian Case: Buying the Dip

The current valuation presents a compelling entry point for investors willing to look past short-term noise.

1. Strong Operational Leverage

FND's operating margin rose to 5.5% in Q1 2025, up 10 basis points from the prior year, thanks to disciplined cost management. Even with tariff pressures, the company's ability to maintain margins while scaling stores bodes well for future profitability.

2. Undervalued on Forward Metrics

At $74.03, FND's stock trades at roughly 37x the midpoint of its 2025 EPS guidance ($1.85). While this may seem rich, it's 38% below its five-year average P/E of 60, suggesting excessive pessimism. If FND can deliver the upper end of its guidance ($2.00 EPS), the P/E drops to 37x, still reasonable for a company with a 12.5% annual EPS growth outlook (per analyst estimates).

3. Long-Term Market Tailwinds

The U.S. flooring market is projected to grow at 4.5% annually through 2030, driven by rising home renovations and urbanization. FND's 251 stores and target of 500 warehouses position it to capture share as the market expands. The company's low-price, high-variety model also aligns with shifting consumer preferences for value-driven home improvement.

4. Technical Rebound Potential

While the stock's 200-day moving average ($97.83) remains far above current levels, a breach of the $80 resistance could spark a technical rebound. Short interest at 4.5% of float adds fuel to a potential short squeeze if earnings beat lowered expectations.

Risks to Consider

• Housing Market Downturn: A prolonged slump in existing home sales could further crimp demand.
• Tariff Escalation: Trade tensions with key suppliers like China could worsen cost pressures.
• Competitive Intensity: Big-box retailers and online platforms are encroaching on FND's niche.

Conclusion: A Tile Worth Picking Up

Floor & Decor's stock is priced for a worst-case scenario that doesn't fully reflect its operational resilience or long-term potential. With a 24% undervaluation (per analyst estimates), a 37x forward P/E, and a $4.4 billion revenue base, FND offers a compelling risk-reward profile for contrarian investors. While risks are real, the company's margin discipline, market position, and growth runway make it a rare opportunity in a volatile sector.

The question isn't whether FND can grow—it already has—but whether investors can stomach the volatility to buy low. For those with a 3–5 year horizon, the tiles are now at bargain prices.

Act now—before the mosaic of opportunity crumbles.