Home Depot vs. Lowe’s: Why Pay a Premium for HD Stock?

Question: Why invest in Home Depot stock (NYSE: HD) at 28 times earnings when Lowe’s stock (NYSE: LOW) is available at a lower multiple of 22? Actually, you would, especially when you consider these simple facts:

1. Growth: Home Depot is expanding faster, with revenue up over 7% in the past twelve months versus a 3% decline at Lowe’s. In the first half of fiscal 2025, HD generated about $85 billion in sales—nearly double its rival.
2. Margins: Profitability also favors HD. Its trailing twelve-month margin topped 13%, while Lowe’s sits closer to 12.4%. For fiscal 1H 2025, HD posted a 13.7% operating margin versus 13.3% for LOW, showing greater efficiency.
3. Tariffs: Both face similar exposure to trade risks given reliance on imports from China, Canada, and Mexico in categories like lumber, steel, and tools. The difference lies in pricing power. HD’s stronger margins and contractor-heavy base allow it to pass costs through, while LOW’s DIY-heavy customers are more price-sensitive, leaving it more vulnerable to margin squeeze.

Image by Steve Buissinne from Pixabay

Is Home Depot A Safe Bet?

While some might consider Home Depot a “safe haven,” its track record during past market shocks tells a different story. In the 2022 inflation-driven downturn, Home Depot dropped over 35%, and during the 2020 pandemic, it fell around 38%. Clearly, HD isn’t exactly a “safe stock.” Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.

That said, Home Depot has seen a marginal pullback, dropping from highs of nearly $425 in January this year to about $413 now (as of writing). For investors seeking a potentially more stable and high-performing alternative, consider the Trefis High Quality Portfolio. This strategy has outperformed the market with over 91% returns since its inception.

Home Depot’s Strategic Initiatives Could Drive Growth

Home Depot’s push into the professional market is backed by investments in digital tools, Pro Desk services, and in-store upgrades. These initiatives drive deeper engagement, even as higher interest rates push customers to rely more on financing or delay major projects. Its scale supports heavy investment in marketing, supply chain, and omnichannel capabilities—reinforcing a durable edge. Also see Buy or Sell Home Depot Stock?

With most U.S. homes now 31–60 years old, demand for repair and renovation remains resilient. Home Depot’s balanced split between DIY and Pro customers strengthens this position, with Pros—who make larger, repeat purchases—driving outsized growth. By contrast, Pros account for only about 30% of Lowe’s sales.

Potential Risks to Consider

The key risk for Home Depot lies in earnings pressure if rising costs further compress margins. While management had initially avoided price hikes earlier this year, it is now implementing selective increases in tariff-sensitive categories. This strategy helps protect profitability without alienating customers, but prolonged tariff pressure could test even Home Depot’s strong domestic sourcing advantage.

Another risk is macro-driven shocks. A sharp slowdown in housing activity, higher-for-longer interest rates, or unexpected market turmoil could weigh heavily on demand. Historically, Home Depot has shown it is not immune to downturns, with potential downside swings of up to 40% in stress scenarios.

Long-Term Perspective

Despite these potential challenges, for long-term investors with a 3-5 year horizon who are comfortable with volatility, Home Depot at its current levels could represent an interesting entry point. For those seeking strategies to navigate market downturns and potentially capitalize on them, exploring options like the Trefis  Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors, or consulting a financial advisor with experience in bear markets could be beneficial. Remember, significant wealth can be generated in the market by those who maintain a calm and strategic approach during periods of volatility.

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