One of the more intriguing picks in Warren Buffett's portfolio is Floor & Decor Holdings (FND 2.66%), if only because it could serve as a quintessential stock for today's Berkshire Hathaway. As a hard flooring retailer, it has the enduring product appeal that draws Buffett. But at a somewhat higher valuation, it would more likely attract his more risk-tolerant lieutenants.

Nonetheless, Floor & Decor is clearly an emerging player in the home improvement industry. Its current size, addressable market, and rapid growth position it to enrich investors over time.

Warren Buffett and Floor & Decor

Berkshire Hathaway first revealed a position in the 13-F filing for the third quarter of 2021. At that time, Berkshire held about 817,000 shares. That position grew modestly in Q4 and, by the first quarter of 2022, would reach almost 4.8 million shares.

Admittedly, the falling stock price may have factored into the massive Q1 increase in shares. The stock lost 38% of its value in that quarter amid the bear market. Also, the drop has continued as it sells at a 45% discount to its January 2022 opening price.

While Buffett's team just bought lots of stocks, the company's place in the market could make Floor & Decor one of Berkshire's standout investments. Indeed, the company has to compete with large home improvement retailers such as Home Depot, Lowe's, and numerous small independents.

Still, by specializing in hard flooring, Floor & Decor can offer a wider variety of options than its massive peers. Also, its size allows for bulk purchasing that could undercut independent flooring retailers.

Its place in the market also bodes well for the company. It operates in 34 states, making it almost a nationwide company. But with only 166 locations in Q1, it will take some time to reach its goal of 500 stores over the next few years. Its footprint is also a tiny fraction of Home Depot's, a retailer with more than 2,300 stores.

Floor & Decor by the numbers

Floor & Decor's stores and online sales helped generate just over $1 billion in net sales in Q1. This amounted to a 32% increase from year-ago levels but slightly lagged the 42% rise in net sales in 2021. Moreover, the Q1 cost of sales rose by 39%. That led to net income falling 6% during that period to $71 million.

Despite its challenges, the company reiterated its estimate for 2022 net sales at between $4.285 billion and $4.375 billion. If that forecast holds, it would mean a 26% net sales increase at the midpoint. Considering the current recession fears, that growth appears strong.

However, the optimism has not stopped the decline in the stock. At a 28 P/E ratio, it is more expensive than Home Depot and Lowe's, which sell for 18 and 15 times earnings, respectively. Nonetheless, Floor & Decor's earnings multiple has come down from the end of 2020, when its P/E ratio exceeded 60. And when factoring in sales growth, that valuation makes the company look extremely cheap.

Consider Floor & Decor stock

Buffett's team has likely found a diamond in the rough with Floor & Decor. Admittedly, a possible recession and rising costs are concerns that have rightly weighed on the stock.

Nonetheless, it continues to log double-digit sales growth under challenging competitive and economic conditions. Considering its number of stores compared to Home Depot, the retail stock could significantly enrich investors as Floor & Decor expands and deepens its nationwide footprint.