In addition to Vitamin Shoppe, which as of last quarter generated roughly 28% of the group’s revenue, Franchise Group also owns Pet Supplies Plus, three discount home-furnishing chains—American Freight, Badcock and Buddy’s Home Furnishings—and Kumon competitor Sylvan Learning.

Franchise Group’s stock has taken a beating this year alongside other furnishings sellers as consumers start spending less on home-related categories. Same-store sales in those chains (which comprise 43% of the group’s revenue) declined in its last quarter ended June 25 compared with a year earlier, leading the company to cut its full-year revenue and earnings guidance. The company’s shares are down 34% year to date—steeper than the 22% decline for a broad basket of retail stocks.

Its other chains have proved to be more defensive, though, given that health, pets and education likely rank higher on consumers’ priority lists. Same-store sales at Vitamin Shoppe, Pet Supplies Plus and Sylvan all grew last quarter compared with a year earlier. Though

Chewy

is a formidable online competitor, demand remains robust for services-driven pet spending such as grooming, which both Pet Supplies Plus and Franchise Group’s newly acquired Wag ‘N Wash chain provide. And, if economic conditions really turn for the worse, the company’s discount furnishing stores could end up benefiting from the trade-down effect. During the Great Recession, Franchise Group’s brands collectively grew same-store sales by roughly 6%, according to a research report from Oppenheimer analyst Ian Zaffino.

Meanwhile, today’s retail woes—especially at small businesses—could end up being a buying opportunity for Franchise Group.

Brian Kahn,

the company’s chief executive, said on an earnings call earlier this month that there are “plenty of fish in the sea,” referring to acquisition targets. The big caveat is that rising interest rates have made such acquisitions harder to finance. But there could be smaller, cheaper fish to catch.

The more eye-catching opportunity, though, lies in Franchise Group’s potential to convert existing stores into franchises. Excluding Sylvan, which still contributes only a small portion to the group’s earnings, about 40% of Franchise Group’s stores are franchised. Mr. Zaffino estimates that the company has potential to convert up to 90% of its store base. While not all of its chains are household names, they do hold considerable market share, and that could help attract franchisees. American Freight is the top seller of “as-is” appliances, a category that includes discontinued, overstocked or reconditioned products. Vitamin Shoppe is the No. 2 wellness provider retail concept, while Pet Supplies Plus is the third-largest pet-care retailer, per Franchise Group estimates.

Franchising can be quite lucrative. Once a company can get a successful chain going, there is limited capital at risk and there is a stream of recurring revenue through royalties and a cut of the stores’ profits. That adds up to a free cash flow-rich company with the ability to dole out healthy dividends. Based on estimates polled by Visible Alpha, Franchise Group is expected to generate $241.6 million in free cash flow next year, or about 17% of its market capitalization. One would have to look to currently booming oil producers to get free cash flow yield anywhere close to that. Buying a share of Franchise Group costs less than $35 today but yields $2.50 worth of dividend payouts in the next 12-month period.

Franchise Group remains quite cheap. Its enterprise value is less than 9 times expected forward-12-month earnings before interest, taxes, depreciation and amortization. While there isn’t really a direct comparison on the public market,

Driven Brands Holdings,

a franchise holding group that owns a portfolio of auto-related service franchises such as Meineke Car Care, goes for nearly 16 times by the same measure.

That is a very fair price to pay for a good dose of diversification and dividends.

Write to Jinjoo Lee at jinjoo.lee@wsj.com