Berkshire Hathaway (BRK.A -0.02%) (BRK.B 0.02%) CEO Warren Buffett became famous for scoring outsized gains for his holding company in numerous stocks. American Express and Coca-Cola are just two names that have earned Berkshire and Buffett outsized returns over the decades.

A name investors may want to watch going forward is Floor & Decor Holdings (FND -3.12%). The Atlanta-based flooring specialist and retailer has offered more selection in its hardwood flooring specialization. Considering its long history of massive sales growth and continued expansion across the U.S., Floor & Decor is shaping up to be a Warren Buffett investment that delivers outsized returns over time.

The case for Floor & Decor

Floor & Decor may seem like an unusual pick for Buffett. Since it only sells hard flooring, it may appear overly specialized. Moreover, its market cap is only $7 billion. This means that it is easily dwarfed by its large-cap competitors, Home Depot and Lowe's.

But amid that size disadvantage, it has built its growth on category dominance. With stores averaging about 78,000 square feet, it devotes significantly more space to hard flooring than its competitors. Additionally, it produces this growth on five pillars that involve store and sales expansion and improved customer experiences.

Graphic of Floor & Decor's Five Pillars of Growth: Open more stores, increase comparable store sales, expand connected customer experience, and invest in design services and pro/commercial customers.

Image source: Floor & Decor Investor Relations.

As of the end of the second quarter of 2022, Floor & Decor operated 174 locations and five design studios in 33 U.S. states. The company believes it holds considerable "whitespace potential" and forecasts it can reach 500 stores in the U.S. over the next eight to 10 years.

As with his more famous long-term holdings, Buffett bought into Floor & Decor well after its 2017 IPO. He acquired his initial position in the third quarter of 2021, starting with about 817,000 shares. Buffett added shares in the next two quarters, taking his total holdings to almost 4.8 million shares today.

Floor & Decor has outsized growth

Floor & Decor's large growth may have inspired Berkshire's added positions. Floor & Decor's sales rose at a 26% compound annual growth rate since 2017. For the first half of 2022, sales increased by 29% year over year to more than $2.1 billion.

Another challenge is inventory levels, which came in at more than $1.3 billion, up from about $1 billion in the second quarter of 2021. Similar to companies such as Target, supply chain concerns left Floor & Decor with increased product inventory that it may have to sell at a discount.

Consequently, Floor & Decor stock did not escape the bear market. The price of this retail stock is down by more than half from its late 2021 peak and it sells near 52-week lows.

Still, Floor & Decor has outperformed the S&P 500 since its 2017 IPO. Moreover, the price-to-earnings (P/E) ratio of 26 comes in near historical lows, a factor that could make it "ridiculously cheap" on a relative basis. With the company's growth expected to remain robust, such a multiple could signify a buying opportunity.

Consider Floor & Decor stock

Floor & Decor is a growth stock that could soar amid a relatively low valuation. Admittedly, the high inventory levels are a concern for now. But between its considerable growth and a more reliable supply chain, high inventory levels are likely a temporary problem.

Moreover, Buffett's team made its largest investment early in the year when the stock was higher. With the stock now trading near 52-week lows, this could mean one can better apply Buffett's principles to score long-term gains, a factor that could boost the confidence of the average investor.