Investors have taken a shine to Floor & Decor (NYSE: FND). The deal was priced way above the $16-18 filing range at $21. The story is fairly simple - FND is like Home Depot for floor products. It’s a massive one-stop shop that appeals to both professionals and homeowners. If you missed it you can review the FND IPO Slide Deck. We've decided to do a transcript after the fact so will have one up in the next week or so.
FND is attacking a very large but very fragmented and inefficient market. Hard surface flooring is mostly serviced by smaller and regional players. The big boys have product, but it’s much more limited. Home Depot and Lowe’s appeal to the DIY segment and small jobs. The same is true for Lumber Liquidators (LL). FND provides selection and showcasing with multiple job quantities in stock for immediate delivery.
Investors are keen because we have an analogous company, SiteOne (NYSE: SITE), which has done something similar in the landscaping sector. After a warm reception, the IPO has performed very well - YTD the stock is up 34% (from $35 to $47) and the IPO was priced in May of 2016 at $21 and opened at $25.
The success of FND and the investor appetite for the shares stands in stark contrast to the “retail is dead” meme which has been with us for the last few years. Amazon is taking over many sectors, but hard surface flooring is probably safe. There are some more things going on in retail that will probably create a renaissance, but it’s not this year.
In terms of price and valuation, there will be 94m shares out after the IPO for a market capitalization of $2B. That's on trailing revenues of $1B and adjusted EBITDA of $108M. The valuation is in line with Home Depot (NYSE: HD), but FND has much higher growth and expanding margins.
At the higher price the shares are less exciting, but this one might be worth a closer look on weakness and/or when lockups come off in six months.
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