Was Smart Money Right About Crowding Into Floor & Decor Holdings, Inc. (FND)?

Reymerlyn Martin
·6 min read

In this article you are going to find out whether hedge funds think Floor & Decor Holdings, Inc. (NYSE:FND) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Floor & Decor Holdings, Inc. (NYSE:FND) a buy here? Investors who are in the know were becoming more confident. The number of long hedge fund bets moved up by 21 lately. Floor & Decor Holdings, Inc. (NYSE:FND) was in 44 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 31. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that FND 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.

To the average investor there are numerous tools shareholders use to size up stocks. A couple of the less known tools are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the best picks of the top hedge fund managers can outperform the S&P 500 by a healthy margin (see the details here).

Dmitry Balyasny of Balyasny Asset Managemnet
Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let's take a peek at the fresh hedge fund action regarding Floor & Decor Holdings, Inc. (NYSE:FND).

How are hedge funds trading Floor & Decor Holdings, Inc. (NYSE:FND)?

At the end of June, a total of 44 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 91% from the previous quarter. By comparison, 21 hedge funds held shares or bullish call options in FND a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Abdiel Capital Advisors held the most valuable stake in Floor & Decor Holdings, Inc. (NYSE:FND), which was worth $287.3 million at the end of the third quarter. On the second spot was Two Creeks Capital Management which amassed $129.7 million worth of shares. Broad Bay Capital, Park Presidio Capital, and Columbus Circle Investors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Two Creeks Capital Management allocated the biggest weight to Floor & Decor Holdings, Inc. (NYSE:FND), around 9.05% of its 13F portfolio. Broad Bay Capital is also relatively very bullish on the stock, setting aside 8.53 percent of its 13F equity portfolio to FND.

Now, specific money managers were leading the bulls' herd. Park Presidio Capital, managed by Lee Hicks and Jan Koerner, initiated the largest position in Floor & Decor Holdings, Inc. (NYSE:FND). Park Presidio Capital had $43.2 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $32.1 million investment in the stock during the quarter. The other funds with brand new FND positions are Amir Mokari's Emerson Point Capital, D. E. Shaw's D E Shaw, and Robert Pitts's Steadfast Capital Management.

Let's now review hedge fund activity in other stocks similar to Floor & Decor Holdings, Inc. (NYSE:FND). These stocks are Voya Financial Inc (NYSE:VOYA), Thor Industries, Inc. (NYSE:THO), Berry Global Group Inc (NYSE:BERY), Axon Enterprise, Inc. (NASDAQ:AAXN), Farfetch Limited (NYSE:FTCH), Donaldson Company, Inc. (NYSE:DCI), and Sensata Technologies Holding plc (NYSE:ST). This group of stocks' market values are similar to FND's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VOYA,41,791893,9 THO,39,301565,19 BERY,40,1455029,6 AAXN,39,609333,13 FTCH,37,837456,15 DCI,27,226099,7 ST,33,1073165,7 Average,36.6,756363,10.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.6 hedge funds with bullish positions and the average amount invested in these stocks was $756 million. That figure was $818 million in FND's case. Voya Financial Inc (NYSE:VOYA) is the most popular stock in this table. On the other hand Donaldson Company, Inc. (NYSE:DCI) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Floor & Decor Holdings, Inc. (NYSE:FND) is more popular among hedge funds. Our overall hedge fund sentiment score for FND is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 30% in 2020 through October 23rd but still managed to beat the market by 21 percentage points. Hedge funds were also right about betting on FND as the stock returned 40.7% since the end of June (through 10/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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Disclosure: None. This article was originally published at Insider Monkey.

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