Source: PaxForex Premium Analytics Portal, Fundamental Insight
Home Depot has faced a challenging operating environment in recent years, with same-store sales consistently declining since late 2022. Despite this, the stock has performed well, climbing approximately 40% over the past year. The company’s fiscal third-quarter results suggest that a recovery could be on the horizon, raising the question of whether now is an opportune moment to invest in the stock.
In the fiscal third quarter ending October 27, Home Depot's comparable-store sales fell 1.3%. While this marked the eighth consecutive quarter of decline, the figure was better than the 3.3% drop analysts had predicted, according to StreetAccount. The number of transactions decreased slightly by 0.2%, and the average ticket size shrank 0.8%.
Big-ticket items, defined as those priced at $1,000 or more, remain a key area of weakness, with comparable sales in this category falling 6.8%. Management attributed this to reduced consumer engagement with large-scale remodeling projects that often require financing. However, certain categories, including paint, power tools, outdoor garden supplies, building materials, and indoor garden items, recorded comparable sales growth, signaling a potential turnaround in demand.
Home Depot's overall revenue rose by 6.6% to $40.2 billion, driven by its acquisition of SRS Distribution. Adjusted earnings per share (EPS) dipped 2% to $3.78, surpassing analysts’ estimates of $3.64 on $39.3 billion in revenue, as compiled by LSEG.
The company revised its full-year guidance, projecting a 2.5% decline in same-store sales, an improvement from its prior forecast of a 3% to 4% drop. Additionally, management raised its full-year revenue growth estimate to 4%, up from the previous range of 2.5% to 3.5%, factoring in the SRS acquisition and an additional fiscal week in 2024.
The past few years have been challenging for Home Depot, partly due to the pandemic, which accelerated demand for home improvement projects, and partly due to higher interest rates and inflation, which increased financing costs and slowed housing turnover. With home turnover rates reaching their lowest levels in over 30 years - just 2.5% of homes changed hands during the first eight months of 2024 - many remodeling projects have been delayed.
However, recent developments suggest a more optimistic outlook. The Federal Reserve has begun easing interest rates, which could reduce financing costs and spur home improvement demand. The Leading Indicator of Remodeling Activity (LIRA) from Harvard University forecasts a return to growth in remodeling activity in the second half of 2025. Historically, Home Depot has outperformed this indicator, suggesting that same-store sales may turn positive earlier.
Despite declining same-store sales, Home Depot's stock remains resilient, trading at a price-to-earnings (P/E) ratio of 27 and a forward P/E of just under 26, near the higher end of its historical range. While the stock isn’t undervalued, the potential for operational leverage as same-store sales improve could lead to earnings growth.
With headwinds expected to ease next year and remodeling activity poised to rebound, Home Depot appears well-positioned for a recovery. Investors seeking to capitalize on this turnaround may find value in the stock ahead of its potential resurgence in 2025.
As long as the price is above 390.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 406.81
- Take Profit 1: 410.00
- Take Profit 2: 420.00
Alternative scenario:
If the level of 390.00 is broken-down , follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 390.00
- Take Profit 1: 380.00
- Take Profit 2: 370.00
