LOW Shares Rally 17% In A Month, Now Is Not The Time To Buy The Stock

We believe there are several things to fear in LOW stock given its overall Weak operating performance and financial condition. This isn’t appropriately reflected in the stock’s Moderate valuation which is why we think it is Unattractive. Here is our multi-factor assessment.

But no matter how attractive, investing in a single stock carries high risk. Trefis High Quality Portfolio and is designed to reduce stock-specific risk while giving upside exposure

Let’s get into details of each of the assessed factors but before that, for quick background: With $147 Bil in market cap, Lowe’s Companies provides home improvement and hardware products to homeowners, renters, and professionals through nearly 2,000 stores across the United States and internationally.

[1] Valuation Looks Moderate

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

[2] Growth Is Very Weak

• Lowe’s Companies has seen its top line shrink at an average rate of -4.4% over the last 3 years
• Its revenues have fallen -2.5% from $85 Bil to $83 Bil in the last 12 months
• Also, its quarterly revenues declined -2.0% to $21 Bil in the most recent quarter from $21 Bil a year ago.

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

[3] Profitability Appears Moderate

• LOW last 12 month operating income was $10 Bil representing operating margin of 12.4%
• With cash flow margin of 10.5%, it generated nearly $8.7 Bil in operating cash flow over this period
• For the same period, LOW generated nearly $6.8 Bil in net income, suggesting net margin of about 8.2%

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

[4] Financial Stability Looks Strong

• LOW Debt was $39 Bil at the end of the most recent quarter, while its current Market Cap is $147 Bil. This implies Debt-to-Equity Ratio of 26.4%
• LOW Cash (including cash equivalents) makes up $3.1 Bil of $45 Bil in total Assets. This yields a Cash-to-Assets Ratio of 6.7%

[4] Downturn Resilience Is Moderate

LOW saw an impact slightly worse 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

• LOW stock fell 34.3% from a high of $261.38 on 10 December 2021 to $171.61 on 16 June 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 23 September 2024
• Since then, the stock increased to a high of $284.05 on 16 October 2024 , and currently trades at $263.73

 
2020 Covid Pandemic

• LOW stock fell 48.6% from a high of $126.57 on 20 February 2020 to $65.02 on 18 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

• LOW stock fell 61.7% from a high of $34.93 on 23 February 2007 to $13.39 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 23 November 2012

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 LOW 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 – S&P 500, Russell, and S&P midcap. 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.