Source: PaxForex Premium Analytics Portal, Fundamental Insight
The pandemic forced many companies to send their employees to work remotely. Millions of employees who were used to appearing in their offices every day had to make significant adjustments to their work.
Home Depot, the housing improvement giant, demonstrated resilience during the pandemic, when sales grew by more than 23% in the quarter that ended August 2. The industry as a whole benefited from people staying at home and using their stimulus checks for housing improvements, and Home Depot was ready for this as it recently completed a huge overhaul of its digital operations. The company has invested $1.2 billion in distribution channels for the program, which began in 2017. Besides, the company now offers a wide range of purchase options, such as online, in-store, and same-day delivery, which is currently upgrading to cover 90 percent of the U.S. population.
Investors will want to know exactly how Home Depot benefits from this significant lifestyle change. Here are two specific ways that the company benefits from moving to remote work:
Some people already have their home offices. However, many people are not so lucky. These people needed to change existing premises or add home extensions to adapt to changes in work needs. Moreover, in companies such as Facebook, Twitter, and Microsoft, employees were able to work from home for a longer period, and perhaps even permanently, people felt more inclined to make capital investments to add a home office. Whether you're adding an office or modifying existing space, Home Depot benefits from customers buying the right materials. This trend may partly explain the company's impressive results in the last quarter when revenues grew 23.4 percent to $38 billion.
Interestingly, among those who have the luxury of working remotely, many are likely to be on a higher pay scale, and some work in a city with a high cost of living. With the prevalence of remote work, some take the opportunity to move to a city with a lower cost of living. For example, technicians in San Francisco think that the cost of housing in nearby Sacramento is one-third of the cost of housing in San Francisco. It may explain, in part, the price spike in U.S. housing prices in the last quarter.
According to the Federal Reserve Bank of St. Louis, homeownership rates rose to 68.2% in the second quarter of 2020, compared with 65.3% in the first quarter. At present they are at a level unseen since the collapse of the housing market in 2007. It should be recognized that record-low interest rates are relevant, as are people looking for backyards for their children to play around. However, the trend towards remote labor played an important role in increasing housing sales.
While adding a home office will give Home Depot a short-term increase in income and profit, increasing homeownership is a long-term benefit. It is because people who own the house, rather than rent it, will spend more money to maintain their property.
Home Depot shares have already grown by 30% per year. The growth has led to these consumer shares being sold with a price/sale ratio of 2.6 and a price-to-earnings ratio of 26. Both are the highest levels at which the company has traded in the last decade.
The market can expect the coronavirus pandemic to cause economic changes that will make Home Depot a more profitable long-term investment. Regardless of the share price, people who spend more time at home and benefit more from their home with the addition of a home office are likely to benefit from Home Depot in the long run.
While the price is below 287.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 276.84
- Take Profit 1: 265.40
- Take Profit 2: 260.10
If the level 287.00 is broken-out, follow the recommendations below.
- Time frame: D1
- Recommendation: long position
- Entry point: 287.00
- Take Profit 1: 296.00
- Take Profit 2: 301.30