In 2019, I gutted my bathroom in preparation of a remodel. But after completing the demolition, I made a last-minute change to my remodel plan. I needed a particular flooring product fast and tried sourcing it at local home-improvement retailers in vain. I then stumbled upon a Floor & Decor (FND -0.40%) about one hour away from my home and found exactly what I needed.
Investing great Peter Lynch advocated for buying what you know. And as I drove home from Floor & Decor that day, I wondered if it was publicly traded. Shortly thereafter, I discovered it was, researched the business, and purchased shares.
Floor & Decor has been a great investment for me so far. But after what the company just did, I might double down. Here’s why.
Why Floor & Decor stock has beaten the market
Floor & Decor went public in 2017 and has since outperformed the market average by a wide margin.
There’s a lot that goes into an investment thesis. But three things that I look for in retail businesses like Floor & Decor are unit growth (opening new locations), growth in same-store sales (comps), and profitability. Floor & Decor has all three, and that’s what attracted me to it as an investment.
Here are the numbers since it went public.
| 2017 | 2018 | 2019 | 2020 | 2021 | |
|---|---|---|---|---|---|
| Unit growth | 20% | 20% | 20% | 10% | 20% |
| Comps growth | 16.6% | 9.2% | 4% | 5.5% | 27.6% |
| Net income growth | 139% | 13% | 30% | 29% | 45% |
Source: Annual SEC filings. Chart by author.
By opening new stores this fast, Floor & Decor has grown its revenue at a rapid pace. Comps growth helps increase revenue, too, but it also helps the company gain operating leverage because there are fixed costs at the store level. Lastly, retail businesses