Insights

• Home Depot exhibits strong revenue growth and efficient expense management, driving profitability, but its high debt levels and low current ratio pose potential financial risks.
• The company's focus on reducing debt and improving its balance sheet structure is crucial for long-term financial health.
• Monitoring working capital management and adapting to changing market conditions will be essential for maintaining its competitive edge.
• The SRS acquisition has significantly impacted the company's financial statements, particularly in terms of intangible assets and debt levels.
• While profitability metrics are generally strong, the decreasing net profit margin warrants attention and may require strategic adjustments.

Analysis

• Revenue - Revenue growth has been moderate, driven by comparable sales and new store openings. - The company has demonstrated a consistent ability to grow revenue, supported by its strong brand and extensive store network. - Revenue growth is expected to continue, driven by expansion, e-commerce, and enhanced customer experiences.
  • Profitability
    • Gross profit margin has remained relatively stable, indicating effective cost management.
    • Operating margin has improved, reflecting efficient expense control.
    • Net profit margin is higher than the industry average, but has been decreasing.
  • Liquidity
    • The current ratio is below the industry average, suggesting potential liquidity concerns.
    • The quick ratio is also below the industry average, indicating limited short-term liquidity.
    • Monitoring working capital management and liquidity will be crucial in the coming quarters.
  • Solvency
    • The debt-to-equity ratio is high, indicating significant financial leverage.
    • The debt-to-EBITDA ratio is also high, reflecting a substantial debt burden.
    • The company is focused on reducing debt levels, which will improve its solvency position.
  • Operational Efficiency
    • Increasing accounts receivable and inventories suggest potential challenges in managing working capital efficiently.
    • Capital expenditures are essential for maintaining and expanding the store network.
    • The company's capital allocation strategy balances organic growth, acquisitions, and shareholder returns.
  • Cash Flow Analysis - Operating cash flow provides a reliable source of liquidity for the company. - Free cash flow generation supports debt repayment, dividend payments, and strategic investments. - The company's ability to generate consistent cash flow enhances its financial flexibility.
  • Risk Factors
    • High debt levels and a low current ratio pose potential financial risks.
    • Fluctuations in working capital can impact operating cash flow.
    • The company faces intense competition in the home improvement retail industry.
  • Future Outlook
    • Continued revenue growth and efficient expense management are expected to drive future profitability.
    • The company is likely to focus on reducing debt levels and improving its balance sheet structure.
    • Monitoring key financial metrics and adapting to changing market conditions will be crucial for long-term success.

Benchmarks (as of 2025-05-21)

• Performance Comparison:

  • The Home Depot, Inc. (HD) has generally underperformed the Consumer Discretionary Select Sector SPDR Fund (XLY) over the past three years. As of the most recent data, HD's year-to-date return is -3.93%, while XLY's is -4.14%, indicating a slight overperformance by HD. However, over longer periods such as 1 year, 2 years, and 3 years, HD's returns of 14.96%, 34.23%, and 40.0% respectively, are lower than XLY's returns of 20.88%, 42.44%, and 53.68%. This suggests that while HD has shown recent improvement, it has lagged behind the broader consumer discretionary sector in the medium term.
  • The consistency of HD's performance relative to XLY has varied. In the short term (Year To Date and 3 Months), HD has shown periods of slight overperformance. However, over the 1 Month and 6 Month periods, HD has significantly underperformed XLY, indicating inconsistency in its relative performance.

• Risk and Return Analysis:

  • The annualized returns for HD are consistently lower than those of XLY across the 1-year, 2-year, and 3-year periods. HD's annualized returns are 14.96%, 15.86%, and 11.87%, compared to XLY's 20.88%, 19.35%, and 15.4%. This indicates that HD has provided lower returns compared to the broader consumer discretionary sector.
  • The annualized volatility of HD has generally been lower than that of XLY. Throughout the observed period, HD's volatility ranged from approximately 11.66% to 39.17%, while XLY's ranged from 11.42% to 49.21%. This suggests that HD's price fluctuations have been less severe than those of the broader consumer discretionary sector.
  • The maximum drawdown for HD was -34.73% on 2022-09-26, while for XLY it was -39.67% on 2022-12-28. This indicates that HD experienced a smaller peak-to-trough decline compared to XLY, suggesting a slightly lower risk profile in terms of potential losses during market downturns.

• Risk-Adjusted Performance:

  • The Sharpe Ratio of HD has generally been lower than that of XLY, indicating that HD has offered a less favorable risk-adjusted return. Throughout the observed period, XLY has shown higher Sharpe ratios, suggesting better compensation for the level of risk taken. As of Q2 2025, the Sharpe ratio for HD is 0.7 and XLY is 0.83.
  • The Beta value of HD has generally been below 1, ranging from 0.6 to 1.07, while XLY's beta has consistently been above 1, ranging from 1.12 to 1.34. This indicates that HD's sensitivity to market movements is lower than that of the broader consumer discretionary sector. HD's lower beta suggests it is less volatile and may offer some downside protection during market declines.

• Overall Assessment:

  • Based on the data, The Home Depot, Inc. (HD) has underperformed the Consumer Discretionary Select Sector SPDR Fund (XLY) in terms of total returns over the past three years, but has shown recent signs of improvement. HD exhibits lower volatility and a smaller maximum drawdown compared to XLY, suggesting a more conservative risk profile. However, its lower Sharpe Ratio indicates that it offers a less favorable risk-adjusted return.
  • A significant trend is the lower beta of HD compared to XLY, indicating that HD is less sensitive to market movements within the consumer discretionary sector. This may appeal to investors seeking stability and downside protection. The data suggests that while HD may not offer the same level of returns as the broader sector, it presents a potentially less risky investment option.

Peers Price History(as of 2025-05-21)

• Performance Comparison:

  • The Home Depot (HD) has shown mixed performance compared to its peers. Over the past year, HD outperformed both Tractor Supply Co. (TSCO) and Lowe's Companies, Inc. (LOW), with a return of 14.96% compared to TSCO's -10.09% and LOW's 4.76%. However, over a 3-year period, HD's return of 40.0% underperformed TSCO's 49.32% but outperformed LOW's 29.66%. Year-to-date, HD is outperforming both TSCO and LOW.

• Risk and Return Analysis:

  • The annualized return for HD over the past year was 14.96%, which is significantly higher than TSCO's -10.09% and LOW's 4.76%. Over a 3-year period, HD's annualized return was 11.87%, lower than TSCO's 14.3% but higher than LOW's 9.04%.
  • In terms of annualized volatility, TSCO generally exhibited higher volatility compared to HD and LOW. As of Q2 2025, HD's volatility was 27.29%, TSCO's was 33.62%, and LOW's was 30.69%.
  • The maximum drawdown for HD was -34.73% on 09/26/2022, which is greater than TSCO's -27.85% on 05/24/2022 but similar to LOW's -33.86% on 06/16/2022. This indicates that HD and LOW have similar risk profiles in terms of potential losses from peak values.

• Risk-Adjusted Performance:

  • The Sharpe Ratio for HD as of Q2 2025 is 0.65, while TSCO has a Sharpe Ratio of -0.25 and LOW has a Sharpe Ratio of 0.24. This suggests that HD offered a better risk-adjusted return compared to TSCO and LOW in the most recent period.
  • The Beta value for HD as of Q2 2025 is 0.62, indicating that HD is less sensitive to market movements compared to LOW (0.63) and TSCO (0.63).

• Overall Assessment:

  • The Home Depot (HD) has demonstrated strong recent performance, outperforming both Tractor Supply Co. (TSCO) and Lowe's Companies, Inc. (LOW) in the past year and year-to-date. While TSCO showed higher returns over a 3-year period, HD's risk-adjusted performance, as indicated by the Sharpe Ratio, is currently better than both TSCO and LOW. The lower beta value for HD suggests it is less sensitive to market volatility, which may appeal to investors seeking stability.
  • Recent trends indicate that while all three companies have experienced decreased Sharpe ratios, HD maintains a positive ratio, suggesting better risk-adjusted returns compared to its peers. The decreasing beta values across all three companies suggest a general trend toward lower market sensitivity.

Peers Fundamentals(as of 2025-04-30)

1. Market Position and Size:

   • The Home Depot (HD) is the dominant player in the home improvement retail industry, boasting a market capitalization of $368,588.26 million, significantly larger than its peers, Tractor Supply Co. (TSCO) at $26,531.36 million and Lowe's Companies, Inc. (LOW) at $127,260.35 million.
   • HD's substantial market cap is supported by its higher revenue ($162,952 million), EBITDA ($25,445 million), and net income ($14,639 million) compared to TSCO and LOW, reflecting its leading position and economies of scale.

2. Profitability and Efficiency:

   • HD exhibits strong profitability, with an EBITDA Margin of 15.62% and a Net Profit Margin of 8.98%, both exceeding those of its peers and the industry average.
   • While its Gross Profit Margin of 31.41% is slightly lower than TSCO (33.22%) and the industry average (38.85%), HD's superior EBITDA and Net Profit Margins indicate efficient cost management and operational effectiveness, especially considering its large revenue base.
   • HD's Return on Average Assets (16.41%) and Return on Average Total Equity (299.52%) are also higher than its peers and the industry average, demonstrating efficient asset utilization and financial leverage.

3. Financial Health and Stability:

   • HD's Current Ratio of 1.09 and Quick Ratio of 0.28 are below the industry average, indicating a relatively weaker short-term liquidity position.
   • Its Total Debt to Total Equity Ratio of 770.47% is significantly higher than TSCO (257.39%) and the industry average (762.94%), suggesting a reliance on financial leverage.
   • However, its Debt / EBITDA ratio of 2.05 is manageable and lower than Lowe's (2.86), indicating its ability to service its debt obligations.

4. Valuation and Market Perception:

   • HD's valuation metrics, including Enterprise Value To Sales (2.59), Enterprise Value To EBITDA (16.24), Price to Book Ratio (55.51), and Price To Sales Ratio (2.26), are higher than its peers and the industry average, suggesting a premium market valuation.
   • Its Price To Earnings ratio of 25.16 is slightly higher than TSCO (24.89) and LOW (18.84), but lower than the industry average (36.09).

5. Cash Flow and Capital Management:

   • HD demonstrates strong cash flow generation, with a Net Operating Cash Flow of $18,638 million and a Free Cash Flow of $15,194 million, significantly higher than its peers.
   • Its Total Capital Expenditure of $3,444 million is also higher than its peers, reflecting its investments in growth and operational improvements.

6. Growth and Future Prospects:

   • HD's recent growth rates in revenue and earnings have been decelerating, with its 3-year CAGR lower than its 5-year CAGR for most metrics.
   • Its year-over-year growth rates have also been fluctuating, with the most recent year showing underperformance compared to the peer group average.
   • However, its Free Cash Flow and Free Cash Flow Margin have shown recent improvements, suggesting a potential turnaround in its cash flow generation capabilities.

7. Potential for Investment:

   • HD presents a mixed investment profile, with its market dominance, profitability, and cash flow generation making it an attractive investment.
   • However, its decelerating growth, high leverage, and premium valuation warrant caution, and investors should carefully consider its growth prospects and financial risk factors.

8. Key Risks and Considerations:

   • HD's decelerating growth in revenue and earnings poses a risk to its long-term competitive advantage and market valuation.
   • Its high leverage could increase its financial risk and limit its flexibility in responding to market changes.
   • Its relatively weaker liquidity position could make it vulnerable to short-term financial challenges.

9. Overall Assessment:

   • The Home Depot is a financially strong company with a dominant market position, high profitability, and strong cash flow generation.
   • However, its decelerating growth, high leverage, and premium valuation warrant caution, and investors should carefully consider its growth prospects and financial risk factors before making an investment decision.