Source: PaxForex Premium Analytics Portal, Fundamental Insight
On Tuesday, August 16, Home Depot reported its financial results for Q2 of the fiscal year 2022. Notably, the home improvement retailer posted the highest quarterly sales and profits in the company's history.
Home Depot's sales skyrocketed early in the pandemic when the company was recognized as a major retailer and allowed to stay open. This overlapped with consumers staying home more often and looking to better their living arrangements.
Surprisingly, Home Depot has maintained its strong performance over the past two years despite the economic recovery and changing consumer behavior. Let's try to figure out why.
In its most recent quarter, which ended July 31, Home Depot reported sales of $43.8 billion. That's a 6.5% increase over the $41.1 billion the company earned in the same quarter of 2021. Perhaps never have people's homes been more important to them than after the coronavirus outbreak and subsequent lockdowns. Even with the easing of business restrictions, many people prefer to work from home.
And if you spend more time at home, you want it to fit your needs, so you renovate the office, and garden and repaint a few rooms. All of this has led to record sales at Home Depot.
More significantly, Home Depot reported earnings per share of $5.05 in the quarter that ended July, an 11.5% growth over last year. The coronavirus pandemic has disrupted supply chains around the world. Combined with robust consumer demand, this has led to widespread inflation in material and labor costs. Home Depot showed its merchandising prowess in Q2, delivering record revenues amid inflationary pressures.
In a conference call following the earnings announcement, Home Depot CEO Ted Dekker said:
"Despite near-term uncertainty, we believe that the long-term fundamentals of demand for home goods remain strong and that we are well positioned to leverage our clear competitive advantages to capitalize on attractive growth opportunities in our area."
Ever since Home Depot's sales increased after the pandemic began, investors have been waiting for the boom to go down. Although growth has slowed, the more significant pullback the market was expecting hasn't happened.
That pessimism partly explains why Home Depot stock is down 22% from last year's highs. Meanwhile, the company has posted solid earnings growth. The combination of a falling stock price and rising earnings has given investors an opportunity to buy Home Depot stock at a price-to-earnings ratio of 19.9, which is the lower end of the range over the past decade.
This could mean that the market has already priced in Home Depot's slowing earnings growth. In other words, it has reduced the risk of buying Home Depot stock in the near term. A company that's performing well in a tough environment is selling at a bargain price. No wonder the investment community is raving about Home Depot stock.
As long as the price is above 296.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 309.48
- Take Profit 1: 316.00
- Take Profit 2: 329.00
Alternative scenario:
If the level of 296.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 296.00
- Take Profit 1: 290.00
- Take Profit 2: 280.00
