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<p style="font-weight: 400;" data-mce-style="font-weight: 400;"><strong>Risk Factors</strong></p><ul style="font-weight: 400;" data-mce-style="font-weight: 400;"><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">High interest rates</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Low existing home sales (down to 4-5 million, average: 5-6 million)</span></li></ul><p style="font-weight: 400;" data-mce-style="font-weight: 400;"><strong>FY2023 Estimates</strong></p><ul style="font-weight: 400;" data-mce-style="font-weight: 400;"><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Number of stores: 230</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">New stores: 32</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Pre-opening expenses (3 months before store opening): $10 million</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Revenue: $4.5 billion</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">EPS: $2.30-$2.50</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">EBITDA: $600 million</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Target: 500 stores in the next 5-7 years, Expected EBIT: $1 billion</span></li></ul><p style="font-weight: 400;" data-mce-style="font-weight: 400;"><strong>Company Brief</strong></p><ul style="font-weight: 400;" data-mce-style="font-weight: 400;"><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Founded in 2000 in Fort Worth, Texas.</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Opened its 100th store in 2018 in Burlingame, California.</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Became a publicly traded company in 2013.</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Reported $4.26 billion in revenue in 2022.</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Employs over 20,000 people.</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">200 stores as of May 10, 2023.</span></li></ul><p style="font-weight: 400;" data-mce-style="font-weight: 400;"><strong>Industry Size</strong></p><ul style="font-weight: 400;" data-mce-style="font-weight: 400;"><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Total addressable market (TAM): $40 billion for hard surface products</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Current company run rate: $4.5 billion, 10% market share</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Market growing at 4-5% annually</span></li></ul><p style="font-weight: 400;" data-mce-style="font-weight: 400;"><strong>Management</strong></p><ul style="font-weight: 400;" data-mce-style="font-weight: 400;"><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Key executives have extensive experience in the home improvement industry, including at Home Depot, the largest home improvement retailer in the world.</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">CEO Thomas V. Taylor started his career at Home Depot and Lowe's at the age of 18, and held various positions in the company, including Vice President of Marketing and Merchandising. He joined FND in 2012.</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">During his tenure at Home Depot, Taylor helped to expand the company from 15 stores to over 2,000 stores.</span></li></ul><p style="font-weight: 400;" data-mce-style="font-weight: 400;"><strong>Capital Allocation</strong></p><ul style="font-weight: 400;" data-mce-style="font-weight: 400;"><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">The company uses its free cash flow (FCF) to open new stores, reduce debt, and make opportunistic acquisitions.</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">In 2022, the company acquired Spartan Surfaces, Inc., a commercial distributor and floor design company.</span></li></ul><p style="font-weight: 400;" data-mce-style="font-weight: 400;"><strong>Management Incentives</strong></p><ul style="font-weight: 400;" data-mce-style="font-weight: 400;"><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Management compensation is based on adjusted EBITDA and return on invested capital (ROIC). The company has a minimum ROIC target of 17%. If ROIC falls below 17%, management does not receive any incentive compensation.</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">The company's NEOs and directors own 2.5% of the company's outstanding shares. Their net worth is closely tied to the company's performance.</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">The company's management team has a tenure of over 10 years. Most of the NEOs have been with the company since 2012.</span></li></ul><p style="font-weight: 400;" data-mce-style="font-weight: 400;"><strong>Economics of FND</strong></p><ul style="font-weight: 400;" data-mce-style="font-weight: 400;"><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Each FND store is 100,000 square feet and sells flooring, wall laminate, bathtubs, and kitchen products.</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">It takes 3 months to open a new FND store.</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">The company expects to break even after 1 year and achieve a pretax payback period of 1-2 years.</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">From year 3 onwards, the company expects to generate a cash on cash return (COCR) of 50%.</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Each FND store generates $15 million in revenue and has a gross margin of 40%.</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">The company's operating margin is 20% and its net margin is 10%.</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">The EBITDA of each FND store is $2-3 million.</span></li></ul><p style="font-weight: 400;" data-mce-style="font-weight: 400;"><strong>Company Product Sales Mix</strong></p><ul style="font-weight: 400;" data-mce-style="font-weight: 400;"><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Laminate and vinyl: 28%</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Tile: 32%</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Decor and wall tile: 17%</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Installation tools and materials: 17%</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Others: 10%</span></li></ul><p style="font-weight: 400;" data-mce-style="font-weight: 400;"><strong>Customer Mix</strong></p><ul style="font-weight: 400;" data-mce-style="font-weight: 400;"><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Homeowners: 60%</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">Pro customers: 40%</span></li></ul><p style="font-weight: 400;" data-mce-style="font-weight: 400;"><strong>Supply Chain</strong></p><ul style="font-weight: 400;" data-mce-style="font-weight: 400;"><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">FND has direct relationships with manufacturers in 24 countries.</span></li></ul><p style="font-weight: 400;" data-mce-style="font-weight: 400;"><strong>Competitive Advantages</strong></p><ul style="font-weight: 400;" data-mce-style="font-weight: 400;"><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">FND has a unique store layout that creates a great shopping experience for customers.</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">The company sources its products directly from manufacturers, which allows it to offer low prices.</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">FND is a one-stop project destination for homeowners and pro customers.</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">The company has a decentralized culture with experienced store-level teams.</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">FND offers free design services at its design studio.</span></li></ul><p style="font-weight: 400;" data-mce-style="font-weight: 400;"><strong>Valuation</strong></p><ul style="font-weight: 400;" data-mce-style="font-weight: 400;"><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">The EBITDA multiple of FND is 20x.</span></li><li style="font-weight: 400;" aria-level="1" data-mce-style="font-weight: 400;"><span style="font-weight: 400;" data-mce-style="font-weight: 400;">This means that the company is valued at Enterprise value 10b</span></li></ul>

Floor and decor investment thesis

<div class="xdj266r x11i5rnm xat24cr x1mh8g0r x1vvkbs x126k92a"><div dir="auto">5 Reasons Why Berkshire Hathaway Invested in Top Home Builders in the US, particular #DHI</div></div><div class="x11i5rnm xat24cr x1mh8g0r x1vvkbs xtlvy1s x126k92a"><div dir="auto"><br></div><div dir="auto"><strong>Favorable macro conditions: </strong></div><div dir="auto">The US housing market is facing a shortage of affordable housing and limited supply. The current supply is 1 million homes, while the normal demand is 1.5 million homes, a 40% shortfall.</div><div dir="auto"><br></div><div dir="auto"><img id="gew51hvsbllrkqpc6" class="object-cover bg-gray-100 " style="aspect-ratio: 16/9; object-position: undefined undefined;" src="https://cdn.durable.co/blocks/2cH78TjYczrjLN9EK7Ml6h3sGFSAu0k4auZBTtyYWIR23v6PwXTj8wrfDJgbiVh9.png" alt="" data-corners="no-rounded" data-aspect="16:9" data-caption="" data-positionx="undefined" data-positiony="undefined" data-mce-src="https://cdn.durable.co/blocks/2cH78TjYczrjLN9EK7Ml6h3sGFSAu0k4auZBTtyYWIR23v6PwXTj8wrfDJgbiVh9.png" data-mce-style="aspect-ratio: 16/9; object-position: undefined undefined;"></div><div dir="auto"><br></div></div><div class="x11i5rnm xat24cr x1mh8g0r x1vvkbs xtlvy1s x126k92a"><div dir="auto"><strong>Rational capital allocation:</strong></div><div dir="auto">Home builders are carefully managing their capital allocation and tightly controlling supply and inventory levels.</div><div dir="auto">Increasing stock repurchase and dividend</div></div><div class="x11i5rnm xat24cr x1mh8g0r x1vvkbs xtlvy1s x126k92a"><div dir="auto"><br></div><div dir="auto"><strong>Very low leverage</strong>: Home builders have very low leverage. For example, the industry leader DHI has only 11% leverage in its homebuilding division.</div><div dir="auto"><br></div><div dir="auto"><figure id="figure-z2rip524mllrkwzjn"><img id="z2rip524mllrkwzjn" src="https://cdn.durable.co/blocks/2fHbhzXZIhatWMNA2lXDdPVfAbpoETZk9wR7xba5SPx2IHtA5VMCquDNkj1NhHdD.png" alt="" class="object-cover bg-gray-100 " style="aspect-ratio: 16/9; object-position: undefined undefined;" data-corners="no-rounded" data-aspect="16:9" data-caption="" data-positionx="undefined" data-positiony="undefined" data-mce-src="https://cdn.durable.co/blocks/2fHbhzXZIhatWMNA2lXDdPVfAbpoETZk9wR7xba5SPx2IHtA5VMCquDNkj1NhHdD.png" data-mce-style="aspect-ratio: 16/9; object-position: undefined undefined;"></figure><p><br></p></div></div><div class="x11i5rnm xat24cr x1mh8g0r x1vvkbs xtlvy1s x126k92a"><div dir="auto"><strong>Reasonable valuation: </strong></div><div dir="auto"><br></div><div dir="auto">Home builders are currently trading at a reasonable valuation, with a price-to-earnings (PE) ratio of less than 7x and an enterprise value to operating cash flow (EV/OFC) ratio of 6x.</div></div><div class="x11i5rnm xat24cr x1mh8g0r x1vvkbs xtlvy1s x126k92a"><div dir="auto"><br></div><div dir="auto"><strong>Housing price and new orders reversing to upstrend</strong></div><div dir="auto"><br></div><div dir="auto">Increasing new home orders: New home orders are increasing significantly, up 37% in Q3 2023 for DHI.<br><br>#quocancapital</div></div>

5 Reasons Why Berkshire Hathaway Invested in Top Home Builders in the US

<p>Investing your money is a great way to build wealth and secure your financial future, but it can also be a risky endeavor if you're not careful. Many people make common investment mistakes that can lead to lost money and missed opportunities. In this post, we'll explore five of the most common investment mistakes and how you can avoid them.</p>

<h2>1. Not Diversifying Your Portfolio</h2>
<p>One of the biggest mistakes investors make is putting all their eggs in one basket. If you invest all your money in one stock or one sector, you're taking on a lot of risk. If that stock or sector performs poorly, you could lose a significant amount of money. The key to avoiding this mistake is to diversify your portfolio. Invest in a variety of stocks, bonds, and other assets to spread your risk and increase your chances of success.</p>
<p><figure id="figure-z4hbfyr9eelld23naz"><img id="z4hbfyr9eelld23naz" src="https://images.unsplash.com/photo-1507238691740-187a5b1d37b8?crop=entropy&cs=tinysrgb&fit=max&fm=jpg&ixid=M3wyNjI5NjF8MHwxfHNlYXJjaHwzfHxwb3J0Zm9saW8lMjBkaXZlcnNpZmljYXRpb258ZW58MHx8fHwxNjkyMTQ5NDY0fDA&ixlib=rb-4.0.3&q=80&w=1080" alt="portfolio diversification" class="object-cover bg-gray-100" style="aspect-ratio: 16/9"></figure></p>

<h2>2. Trying to Time the Market</h2>
<p>Another common mistake investors make is trying to time the market. This means trying to buy and sell stocks based on predictions about the market's future movements. The problem is that no one can predict the market with certainty, and trying to time the market can lead to missed opportunities and lost money. Instead of trying to time the market, focus on building a diversified portfolio of quality investments and holding them for the long term.</p>
<p><figure id="figure-ja9i3m1gcnlld23qra"><img id="ja9i3m1gcnlld23qra" src="https://images.unsplash.com/photo-1559554757-1a0806478c64?crop=entropy&cs=tinysrgb&fit=max&fm=jpg&ixid=M3wyNjI5NjF8MHwxfHNlYXJjaHwxOHx8bWFya2V0JTIwdGltaW5nfGVufDB8fHx8MTY5MjE0OTQ2OHww&ixlib=rb-4.0.3&q=80&w=1080" alt="market timing" class="object-cover bg-gray-100" style="aspect-ratio: 16/9"></figure></p>

<h2>3. Ignoring Fees and Expenses</h2>
<p>Investing comes with fees and expenses, and these costs can into your returns over time. Many investors make the mistake of ignoring these fees and expenses, which can significantly impact their investment returns. To avoid this mistake, make sure you understand all the fees and expenses associated with your investments and choose low-cost options whenever possible.</p>
<p><figure id="figure-104rkhp1welld23ske"><img id="104rkhp1welld23ske" src="https://images.unsplash.com/photo-1468254095679-bbcba94a7066?crop=entropy&cs=tinysrgb&fit=max&fm=jpg&ixid=M3wyNjI5NjF8MHwxfHNlYXJjaHwxOXx8aW52ZXN0bWVudCUyMGZlZXN8ZW58MHx8fHwxNjkyMTQ5NDcxfDA&ixlib=rb-4.0.3&q=80&w=1080" alt="investment fees" class="object-cover bg-gray-100" style="aspect-ratio: 16/9"></figure></p>

<h2>4. Letting Emotions Drive Your Decisions</h2>
<p>Investing can be an emotional experience, especially when the market is volatile. Many investors make the mistake of letting their emotions drive their investment decisions, which can lead to poor choices and lost money. To avoid this mistake, stay calm and rational when making investment decisions. Stick to your investment plan and avoid making impulsive decisions based on fear or greed.</p>
<p><image:emotional investing/></p>

<h2>5. Failing to Rebalance Your Portfolio</h2>
<p>Finally, many investors make the mistake of failing to rebalance their portfolios. Over time, your investment portfolio will naturally shift as some assets perform better than others. If you don't rebalance your portfolio periodically, you could end up with a portfolio that's too heavily weighted in one area. To avoid this mistake, periodically review your portfolio and rebalance it as needed to ensure it stays aligned with your investment goals.</p>
<p><figure id="figure-r4p0agchcklld23wgt"><img id="r4p0agchcklld23wgt" src="https://images.unsplash.com/photo-1470790376778-a9fbc86d70e2?crop=entropy&cs=tinysrgb&fit=max&fm=jpg&ixid=M3wyNjI5NjF8MHwxfHNlYXJjaHw0fHxwb3J0Zm9saW8lMjByZWJhbGFuY2luZ3xlbnwwfHx8fDE2OTIxNDk0NzV8MA&ixlib=rb-4.0.3&q=80&w=1080" alt="portfolio rebalancing" class="object-cover bg-gray-100" style="aspect-ratio: 16/9"></figure></p>

<p>By avoiding these common investment mistakes, you can increase your chances of success and build a strong investment portfolio that will help you achieve your financial goals.</p>

Quoc An Capital

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Floor and decor investment thesis

5 Reasons Why Berkshire Hathaway Invested in Top Home Bui...

5 common investment mistakes and how to avoid them