Source: PaxForex Premium Analytics Portal, Fundamental Insight
After the coronavirus pandemic began, Home Depot experienced an incredible rebound. Shareholders were pleasantly surprised by one of the unintended consequences of the government's forced closure of non-vital businesses.
People, who are more likely to stay home with fewer places to spend money, turned to home improvement retailers to complete projects around the house. Home Depot's sales have skyrocketed, and its stock price has followed suit, rising 56% in 2021. Let's see if Home Depot can maintain this momentum in 2022 and raise its stock price to $500.
Over the past decade, Home Depot's earnings have grown at a compound annual growth rate of 6.9%. But for the nine months ended Oct. 31, Home Depot's revenue was up 15.6% over the same period last year. Such is the positive impact the new consumer lifestyle is having on the company's business. Sales growth boosted operating income by 28.3% over the same period.
The COVID-19 pandemic has made the home a more important place than ever. People are increasingly working, entertaining, studying, and playing sports at home. Many people's homes were not built for these extra purposes. That's where the nearest Home Depot store came in handy.
At the beginning of the pandemic, Home Depot sales were driven by do-it-yourself projects. People were hesitant to bring professional contractors into their homes for more substantial and complicated projects. Now that more people are getting vaccinated again
st COVID-19, they have become better about inviting professionals into their homes. As a result, professionals are spending more at Home Depot.
Another factor driving sales at Home Depot is the increase in home values. If people believe their home is worth more, it encourages them to spend money on improvements, additions, and maintenance. Such spending is seen as an investment rather than an expense. According to the Federal Reserve Bank of St. Louis, in every month from April 2021 through October, the last month the data were available, home prices showed record year-over-year growth.
Rising home values and momentum from professional contractors could contribute to Home Depot's earnings growth in 2022.
As of this writing, Home Depot stock is trading at $405. To reach $500 in 2022, they would have to rise 20%. That's probably not that easy, given the incredible upswing that has already occurred and the huge amount of money people have put into home improvement since the pandemic began. Perhaps we shouldn't expect this dynamic to continue.
Still, Home Depot is a great business with a management team that has proven to be able to adapt to significant disruptions. Investors have no reason to think that the company won't be able to deal effectively with a slowdown in revenue growth. While the likelihood of Home Depot's stock price reaching $500 in 2022 is slim, it is still a great asset for portfolios of long-term investors.
As long as the price is above 397.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 405.00
- Take Profit 1: 431.00
- Take Profit 2: 440.00
Alternative scenario:
If the 397.00 level is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 397.00
- Take Profit 1: 382.00
- Take Profit 2: 374.00
