Buy or Sell Home Depot Stock?

Home Depot (HD) stock has fallen 6.0% during the past day, and is currently trading at $336.48. We believe there are a few things to fear in HD stock given its overall Moderate operating performance and financial condition. This is aligned with the stock’s Moderate valuation because of which we think it is Fairly Priced.

Below is our assessment:

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Let’s get into details of each of the assessed factors but before that, for quick background: With $334 Bil in market cap, Home Depot provides building materials, home improvement products, lawn and garden supplies, décor, and installation services for flooring, cabinets, countertops, HVAC systems, and windows.

[1] Valuation Looks Moderate

This table highlights how HD is valued vs broader market. For more details see: HD Valuation Ratios

[2] Growth Is Weak

• Home Depot has seen its top line grow at an average rate of 2.2% over the last 3 years
• Its revenues have grown 8.5% from $152 Bil to $165 Bil in the last 12 months
• Also, its quarterly revenues grew 4.9% to $45 Bil in the most recent quarter from $43 Bil a year ago.

This table highlights how HD is growing vs broader market. For more details see: HD Revenue Comparison

[3] Profitability Appears Moderate

• HD last 12 month operating income was $22 Bil representing operating margin of 13.1%
• With cash flow margin of 10.8%, it generated nearly $18 Bil in operating cash flow over this period
• For the same period, HD generated nearly $15 Bil in net income, suggesting net margin of about 8.9%

This table highlights how HD profitability vs broader market. For more details see: HD Operating Income Comparison

[4] Financial Stability Looks Strong

• HD Debt was $61 Bil at the end of the most recent quarter, while its current Market Cap is $334 Bil. This implies Debt-to-Equity Ratio of 18.5%
• HD Cash (including cash equivalents) makes up $2.8 Bil of $100 Bil in total Assets. This yields a Cash-to-Assets Ratio of 2.8%

[5] Downturn Resilience Is Moderate

HD saw an impact slightly better than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• HD stock fell 35.9% from a high of $416.18 on 7 December 2021 to $266.58 on 26 September 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 16 October 2024
• Since then, the stock increased to a high of $431.37 on 8 December 2024 , and currently trades at $336.48

 
2020 Covid Pandemic

• HD stock fell 38.4% from a high of $247.02 on 20 February 2020 to $152.15 on 20 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 27 May 2020

 
2008 Global Financial Crisis

• HD stock fell 56.9% from a high of $41.76 on 13 February 2007 to $18.00 on 6 March 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 20 December 2011

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read HD Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.