A Side-by-side Analysis of Floor & Decor Holdings, Inc. (FND) and Tandem Diabetes Care, Inc. (TNDM)

Floor & Decor Holdings, Inc. (NYSE:FND) shares are up more than 74.90% this year and recently increased 5.23% or $2.25 to settle at $45.30. Tandem Diabetes Care, Inc. (NASDAQ:TNDM), on the other hand, is up 67.08% year to date as of 08/13/2019. It currently trades at $63.44 and has returned 1.52% during the past week.

Floor & Decor Holdings, Inc. (NYSE:FND) and Tandem Diabetes Care, Inc. (NASDAQ:TNDM) are the two most active stocks in the Home Improvement Stores industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect FND to grow earnings at a 19.90% annual rate over the next 5 years.

Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Floor & Decor Holdings, Inc. (FND) has an EBITDA margin of 15.53%. This suggests that FND underlying business is more profitable FND’s ROI is 17.00% while TNDM has a ROI of -38.10%. The interpretation is that FND’s business generates a higher return on investment than TNDM’s.

Cash Flow

If there’s one thing investors care more about than earnings, it’s cash flow. FND’s free cash flow (“FCF”) per share for the trailing twelve months was +0.46. Comparatively, TNDM’s free cash flow per share was -0.05. On a percent-of-sales basis, FND’s free cash flow was 2.68% while TNDM converted -0% of its revenues into cash flow. This means that, for a given level of sales, FND is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios are important because they reveal the financial health of a company. FND has a current ratio of 1.30 compared to 2.50 for TNDM. This means that TNDM can more easily cover its most immediate liabilities over the next twelve months. FND’s debt-to-equity ratio is 0.21 versus a D/E of 0.00 for TNDM. FND is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

FND trades at a forward P/E of 33.04, a P/B of 6.66, and a P/S of 2.44, compared to a P/B of 25.38, and a P/S of 13.13 for TNDM. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. FND is currently priced at a 0.2% to its one-year price target of 45.21. Comparatively, TNDM is -22.99% relative to its price target of 82.38. This suggests that TNDM is the better investment over the next year.

Insider Activity and Investor Sentiment

Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. FND has a short ratio of 8.15 compared to a short interest of 2.72 for TNDM. This implies that the market is currently less bearish on the outlook for TNDM.

Summary

Floor & Decor Holdings, Inc. (NYSE:FND) beats Tandem Diabetes Care, Inc. (NASDAQ:TNDM) on a total of 8 of the 14 factors compared between the two stocks. FND is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, FND is the cheaper of the two stocks on book value and sales basis,