Are Robust Financials Driving The Recent Rally In Floor & Decor Holdings, Inc.’s (NYSE:FND) Stock?

Most readers would already be aware that Floor & Decor Holdings’ (NYSE:FND) stock increased significantly by 30% over the past three months. Given the company’s impressive performance, we decided to study its financial indicators more closely as a company’s financial health over the long-term usually dictates market outcomes. Specifically, we decided to study Floor & Decor Holdings’ ROE in this article.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

View our latest analysis for Floor & Decor Holdings

How To Calculate Return On Equity?

Return on equity can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity

So, based on the above formula, the ROE for Floor & Decor Holdings is:

17% = US$145m ÷ US$850m (Based on the trailing twelve months to June 2020).

The ‘return’ refers to a company’s earnings over the last year. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.17 in profit.

What Is The Relationship Between ROE And Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Floor & Decor Holdings’ Earnings Growth And 17% ROE

At first glance, Floor & Decor Holdings seems to have a decent ROE. Further, the company’s ROE is similar to the industry average of 15%. Consequently, this likely laid the ground for the impressive net income growth of 31% seen over the past five years by Floor & Decor Holdings. We reckon that there could also be other factors at play here. For example, it is possible that the company’s management has made some good strategic decisions, or that the company has a low payout ratio.

As a next step, we compared Floor & Decor Holdings’ net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 5.9%.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Floor & Decor Holdings fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Floor & Decor Holdings Using Its Retained Earnings

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Stock recover on signs of improving Trump’s health

MILAN (Reuters) – Stocks and other risk assets rose on Monday as signs that Donald Trump’s health was improving brought relief to markets after the uncertainty of his COVID-19 infection sent investors rushing for safety last week.

FILE PHOTO: The New York Stock Exchange is pictured in the Manhattan borough of New York City, New York, U.S., October 2, 2020. REUTERS/Carlo Allegri/File Photo

The U.S. President, 74, was flown to a hospital for treatment on Friday, but his doctors said he had responded well and could return to the White House as soon as on Monday.

The MSCI world equity index, which tracks shares in 49 countries, was up 0.4% by 0812 GMT, supported by overnight gains across Asia and a positive start in Europe.

The pan-European STOXX 600 .STOXX rose 0.7%. S&P 500 futures EScv1 rose 0.5% and Nasdaq futures NQc1 0.8%, indicating a similarly strong start on Wall Street later.

Overhanging the relief rally, however, were concerns that Trump’s case could be more severe than public disclosures suggest, and that more restrictive measures by governments to slow coronavirus infections could harm the economic recovery.

Some traders were concerned by doctors’ admission that Trump had been given supplementary oxygen and steroids.

“Many questions remain including the use of the steroid drug … which is usually reserved for those with severe illness,” said Raymond James strategist Chris Bailey in London. “Global cases now top 35 million and various new restrictions in Paris, New York, etc”,

A survey on Monday showed the euro zone’s economic recovery faltered last month as new restrictions sent its dominant service sector into reverse.

IHS Markit’s final composite Purchasing Managers’ Index fell to 50.4, just above the 50 mark separating growth from contraction.

Trump’s infection also comes less than one month before the presidential election on Nov. 3, potentially fuelling more market volatility and making the outcome of the vote even more difficult to predict.

“In terms of the impact on the election, we haven’t seen enough polling to assess whether this increases or decreases his chances of winning,” said Deutsche Bank strategists.

According to a Reuters/Ipsos poll released on Sunday, Democrat contender Joe Biden opened his widest lead in a month in the U.S. presidential race.

The volatility VIX index .VIX, known as Wall Street’s fear gauge, remained close to the one-week high it hit on Friday.

Meantime, suggestions Trump could leave hospital sent oil prices up more than 2%. An escalating workers’ strike in Norway that has shut four of Equinor’s oil and gas fields also helped drive the gains. [O/R]

Brent LCOc1 prices were up 2% at $40.1 a barrel and U.S. West Texas Intermediate CLc1 added 2.2% to $37.9 a barrel.

The dollar was little changed as investors awaited news about U.S. Trump’s health and developments in fiscal aid talks in Washington. [FRX/] The dollar index =USD was last down less than 0.1% on the day at 93.722.

Yields on benchmark 10-year Treasuries US10YT=RR rose to 0.7088% and the yield curve

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Will a Housing Market Crash Affect Home Depot Stock?

Will the housing market crash again? Maybe. Many aspects of the economy are cyclical, and housing prices do occasionally fall. Is a housing crash imminent? That’s harder to answer.

Some have sounded the alarm on housing for good reason. Consider the famous Case-Shiller Home Price Index, an inflation-adjusted metric created by Standard & Poor’s tracking housing prices. The index’s value was 100 back in the year 2000 and had been close to 100 when applying the index’s criteria backward to the 20th century. But since 2000, it has risen above 180 on two occasions. The first time preceded the housing crash of the Great Recession.

The second time the Case-Shiller index exceeded 180 is right now. In reality, it passed the mark way back in 2016, and it’s currently around 215. So no need to panic: Crossing 180 doesn’t immediately flip a housing-crash switch. It just shows housing prices have gone up a lot. The bigger problem, though, is how much faster home values are growing relative to average income. Consider the data over just the last 10 years.

Case-Shiller Home Price Index: National Chart

Data by YCharts.

It’s probably unsustainable for home values to outpace personal income long term. Eventually people could be priced out of affordable housing, and that could spark a housing market correction. Will that affect companies like Home Depot (NYSE:HD)?

To answer that, we can start by going back to the Great Recession. 

A model house sits atop Jenga blocks while a businessman removes a piece, creating instability.

Image source: Getty Images.

The last time Home Depot’s revenue fell

Home Depot’s revenue fell from 2007 to 2009. In fiscal 2006, when things were going well, the company generated $90.8 billion in full-year net sales. In fiscal 2009, it generated just $66.2 billion — down 27% over three years. Likewise, net earnings took a hit as the company lost operating leverage from lower sales per location. Net earnings fell a whopping 55% from $5.8 billion in 2006 to $2.6 billion in 2009.

The Case-Shiller index fell 20% from the beginning of 2007 to the end of 2009, and it’s tempting to attribute Home Depot’s slumping results entirely to plunging home values. Results from Lowe’s (NYSE:LOW) lend credibility to this theory. In fiscal 2007, Lowe’s sales at existing stores, known as comparable sales, fell 5.1%. This is similar to Home Depot’s 6.7% comps decline that same year.

But this is correlation, not causation. Consider that home values were already going down in 2006 when Home Depot’s sales were still up. Furthermore, the Case-Shiller index fell another 7% from the beginning of 2010 through the end of 2011. By contrast, both Home Depot and Lowe’s had already returned to revenue growth.

To summarize, home values and revenue for home-improvement retail don’t always track in the same direction. And that makes sense. Regular home maintenance doesn’t stop just because the value of a home drops.

Wooden blocks spell the word risk.

Image source: Getty Images.

The greater risk

There were multiple other issues affecting Home Depot’s revenue in the Great Recession, including high unemployment, lack of credit, and a construction slowdown. But that last factor

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Forget Coca-Cola, Home Depot Is a Better Dividend Stock

Finding a good dividend involves more than just screening for high yields and long track records of annual payout raises. Many blue chip businesses would show up in that search, but only a few of these stocks will end up generating the type of market-thumping returns that income investors are reaching for.

That fact shines through when stacking up two Dow giants, Coca-Cola (NYSE:KO) and Home Depot (NYSE:HD). While the beverage titan has plenty of attractive investment qualities, Home Depot looks like the better dividend stock right now.

A couple shopping for appliances.

Image source: Getty Images.

More ammunition

Sure, Coca-Cola pays a higher yield today, at over 3% compared with Home Depot’s 2%. But that gap is mainly due to investors’ judgments about the two companies diverging growth outlooks. Consumers are more focused on home improvements thanks to pandemic-related changes to shopping and work habits. These shifts have moved against Coke by severely limiting people’s mobility and densely attended events like concerts and sports.

Those limitations won’t last forever (Coke believes a full recovery might take less than two years). Yet it still seems likely that Home Depot will have more resources it can direct toward dividend boosts at least through 2021. The company last reported double-digit gains in both customer traffic and average spending per visit on the way to adding $8 billion of additional revenue to its sales base. Coke, in contrast, saw sales volumes drop 16% in the most recent quarter .

Dividend qualities

Home Depot was a more generous dividend payer even before the pandemic began supporting its finances in early 2020. Its last annual hike was 10%, compared with Coke’s 2.5%. Home Depot also targets returning over 50% of yearly earnings to shareholders as dividends. Rival Lowes (NYSE:LOW), on the other hand, targets a payout ratio of 35%.

That more-aggressive posture does come with extra risks. Home Depot paused payout hikes during the worst of the housing crisis in 2009 and 2010 while Lowe’s continued its modest increases. That’s why the chain doesn’t qualify as a Dividend Aristocrat today, while Coca-Cola easily meets those requirements.

Financial efficiency

Perhaps the best reason to love Home Depot as a dividend stock is its financial efficiency. Under CEO Craig Menear, the company has put together a stellar track record of spending that positioned it well for the current multichannel selling environment while aggressively buying back stock.

The combination of these trends allowed return on invested capital to hover near 40%. That’s well ahead of Coke’s 14% figure and good enough to keep Home Depot near the top of the entire market on that key financial metric.

Of course, these performance gaps aren’t a secret on Wall Street, and that fact helps explain why Home Depot shares have trounced the market in 2020 while Coke’s are lagging. The beverage giant might also attract investors who prefer to purchase excellent businesses that appear to be going through temporary slumps.

Yet Home Depot has earned its premium valuation through a wide

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How Floor & Decor (FND) Stock Stands Out in a Strong Industry

One stock that might be an intriguing choice for investors right now is Floor & Decor Holdings, Inc. FND. This is because this security in the Building Products – Wood space is seeing solid earnings estimate revision activity, and is in great company from a Zacks Industry Rank perspective.

This is important because, often times, a rising tide will lift all boats in an industry, as there can be broad trends taking place in a segment that are boosting securities across the board. This is arguably taking place in the Building Products – Wood space as it currently has a Zacks Industry Rank of 9 out of more than 250 industries, suggesting it is well-positioned from this perspective, especially when compared to other segments out there.

Meanwhile, Floor & Decor is actually looking pretty good on its own too. The firm has seen solid earnings estimate revision activity over the past month, suggesting analysts are becoming a bit more bullish on the firm’s prospects in both the short and long term.

Floor Decor Holdings, Inc. Price and Consensus

Floor  Decor Holdings, Inc. Price and Consensus

Floor Decor Holdings, Inc. price-consensus-chart | Floor Decor Holdings, Inc. Quote

In fact, over the past month, current quarter estimates have risen from 38 cents per share to 39 cents per share, while current year estimates have risen from $1.15 per share to $1.19 per share. This has helped FND to earn a Zacks Rank #1 (Strong Buy), further underscoring the company’s solid position. You can see the complete list of today’s Zacks #1 Rank stocks here.

So, if you are looking for a decent pick in a strong industry, consider Floor & Decor. Not only is its industry currently in the top third, but it is seeing solid estimate revisions as of late, suggesting it could be a very interesting choice for investors seeking a name in this great industry segment.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The Zacks Analyst Blog Highlights: Atlas Air Worldwide, BMC Stock, Central Garden & Pet Company, Comfort Systems USA and DICK’S Sporting Goods

For Immediate Release

Chicago, IL – September 17, 2020 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Atlas Air Worldwide Holdings, Inc. AAWW, BMC Stock Holdings, Inc. BMCH, Central Garden & Pet Company CENT, Comfort Systems USA, Inc. FIX and DICK’S Sporting Goods, Inc. DKS.

Here are highlights from Wednesday’s Analyst Blog:

Wall Street Makes Record Recovery from Coronavirus: 5 Growth Picks

The Dow Jones Industrial Average, despite the recent turmoil, has almost recovered all losses suffered during the coronavirus pandemic. The blue-chip index bounced back from the bear market territory in March and is now near its all-time high achieved on Feb 12, 2020.

Similarly, the S&P 500 had plummeted more than 30% within six weeks this spring, marking its fastest descent from record levels into a bear market. But the broader index has been on an uptrend, recording the fifth successive month of rally in August in more than 80 years.

What’s more, the S&P 500’s journey from a record high in February to a bear market in March, and then again to a new record, only took 126 trading days this year, the fastest-ever climb. To put things into perspective, if we go back to 1928, it took the index 1,500 trading sessions to return to record levels after slipping into bear territory.

This year’s stock market rebound has been even more startling, since the year has been plagued by a pandemic that left millions of Americans unemployed, while corporate profits have seen the steepest collapse in a decade. So, what drove the historic rally? Primarily, stimulus from the Fed and the Congress helped the stock market scale north.

The Fed has kept interest rates at near-zero levels and has promised to keep it at that level even if inflation picks up. Fed’s initiative to lend billions across markets also buoyed investors. Moreover, as Fed bought corporate and Treasury bonds, yields tanked, making stocks more alluring.

At the same time, the U.S. government provided more than 150 million in stimulus checks to Americans and nearly half a trillion dollars in loans to small business houses. The encouraging response along with the lessons learned in the financial crisis of 2008 helped the stock market’s rebound.

And let’s admit, many investors still had faith that the U.S. economy will get its mojo back once the pandemic is under control. In fact, factory activity had accelerated in August, and hiring improved for the fourth straight month. Consumer outlays also picked up in August after a substantial drop. To top it, many analysts opine that the skid in corporate profits has likely bottomed, too. Leuthold Group, a research firm, added that many economists now expect annual GDP to improve next year at a rate not seen in the past 70 years.

Talking about individual performers, the tech behemoths in particular have

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Is Madison Square Garden Sports Corp. (MSGS) A Good Stock To Buy?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Madison Square Garden Sports Corp. (NYSE:MSGS) and determine whether the smart money was really smart about this stock.

Is Madison Square Garden Sports Corp. (NYSE:MSGS) the right investment to pursue these days? Investors who are in the know were in a bullish mood. The number of long hedge fund bets moved up by 2 recently. Madison Square Garden Sports Corp. (NYSE:MSGS) was in 43 hedge funds’ portfolios at the end of June. The all time high for this statistics is 52. Our calculations also showed that MSGS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most stock holders, hedge funds are assumed to be unimportant, outdated investment tools of the past. While there are greater than 8000 funds trading today, We choose to focus on the upper echelon of this group, approximately 850 funds. These investment experts watch over most of all hedge funds’ total asset base, and by keeping track of their best picks, Insider Monkey has uncovered a number of investment strategies that have historically outrun the market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Clifton Robbins Blue Harbour

Clifton S. Robbins of Blue Harbour Group

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla

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