Key takeaways
View moreHome Depot's current valuation appears stretched given its premium multiples (EV/EBITDA of 16.24x vs. industry average 13.91x) and significant near-term challenges including tightening liquidity, high financial leverage, and margin pressures from the SRS acquisition. While the company maintains strong market position and profitability metrics, these advantages appear more than fully priced into the current valuation, especially considering the decelerating revenue growth and macroeconomic headwinds facing the housing market.
- Home Depot's revenue growth is decelerating, with the most recent quarterly revenue at $39.86 billion, down from $43.18 billion in the previous year, indicating potential challenges in sustaining high growth rates.
- The company's liquidity position is tightening, as evidenced by a decrease in working capital from $4.15 billion to $2.94 billion and a current ratio of 1.09, which is below the industry average of 1.4, raising concerns about short-term financial obligations.
- High financial leverage, with a debt-to-equity ratio of 770.47, slightly above the industry average of 762.94, increases financial risk and sensitivity to interest rate changes.
- The SRS acquisition, while strategically important, is creating a near-term headwind to gross margins, as noted in the Q1 2025 earnings call, requiring careful management of integration and cost synergies.
- Home Depot's Enterprise Value to EBITDA of 16.24 and Enterprise Value to Sales of 2.59 are above the industry averages, suggesting potential overvaluation and the need for strong performance to justify current market expectations.
- The company is actively diversifying its global sourcing strategy to mitigate potential tariff impacts, aiming for no single country outside the U.S. to represent more than 10% of purchases within 12 months, which is crucial for maintaining competitive pricing.
- Home Depot has generally underperformed the Consumer Discretionary Select Sector SPDR Fund (XLY) over the past year, with a return of 3.92% compared to XLY's 17.72%, indicating sector-specific challenges or company-specific issues affecting investor returns.
- Management reaffirmed its fiscal 2025 guidance, expecting total sales growth of approximately 2.8% and comp sales growth of approximately 1%, reflecting a cautious outlook given macroeconomic uncertainties and integration challenges.
- The company's focus on maturing its Pro ecosystem, particularly through the integration of SRS and the expansion of trade credit programs, represents a significant growth opportunity that could drive future revenue and profitability.
- Legal and regulatory risks, such as the EPA consent decree, pose ongoing challenges and potential financial liabilities, requiring proactive compliance and risk management strategies.
Evaluation summary
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Company Overview:
- The Home Depot, Inc. (HD) is the world's largest home improvement retailer, operating 2,347 stores across the U.S., Canada, and Mexico.
- The company offers a wide range of products, including building materials, home improvement products, lawn and garden products, and decor products, along with home improvement installation services and tool and equipment rental.
- In fiscal year 2024, Home Depot acquired SRS, a leading residential specialty trade distribution company, for $18 billion.
- Benchmarks for comparative analysis include the Consumer Discretionary Select Sector SPDR Fund (XLY), and industry peers include Tractor Supply Co. (TSCO) and Lowe's Companies, Inc. (LOW).
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Financial Performance:
- The Home Depot's revenue shows signs of decelerating growth. The most recent quarterly revenue (2025-04-30) was $39.86 billion, compared to $43.18 billion in 2024-07-31.
- Gross profit margin was 31.77% as of 2025-04-30, below the industry average of 38.85%.
- Net profit margin was 8.61% as of 2025-04-30, above the industry average of 5.93%. However, this is a decrease from 10.56% in 2024-07-31.
- Return on Assets (ROA) was 16.41%, Return on Equity (ROE) was 299.52%, and Return on Invested Capital (ROIC) was 25.68% as of 2025-04-30, all significantly higher than industry averages of 10.78%, 241.17%, and 16.82%, respectively.
- The earnings call for Q1 2025 reported sales of $39.9 billion, a 9.4% increase year-over-year, driven by the SRS acquisition. However, comp sales decreased by 0.3%.
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Operational Efficiency:
- Total current assets were $34.53 billion as of 2025-04-30, compared to total current liabilities of $31.59 billion.
- Working capital was $2.94 billion as of 2025-04-30, a decrease from $4.15 billion as of 2024-07-31, indicating a tightening liquidity position.
- Net operating cash flow was $4.33 billion as of 2025-04-30, a decrease from $5.41 billion as of 2024-07-31.
- Free cash flow to equity was $3.52 billion as of 2025-04-30, a decrease from $4.69 billion as of 2024-07-31.
- Total capital expenditure was $806 million as of 2025-04-30, an increase from $719 million as of 2024-07-31.
- Cash dividends paid were $2.29 billion as of 2025-04-30, consistent with previous quarters.
- The current ratio was 1.09 as of 2025-04-30, below the industry average of 1.4. The quick ratio was 0.28, also below the industry average of 0.48.
- The debt-to-equity ratio was 770.47 as of 2025-04-30, slightly above the industry average of 762.94, indicating high financial leverage.
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Growth Opportunities:
- The company is focused on maturing its Pro ecosystem, particularly through the integration of SRS and the expansion of trade credit programs.
- Home Depot is diversifying its global sourcing strategy, aiming to have no single country outside the U.S. represent more than 10% of purchases within 12 months.
- Investments are being made in associate training and tools, including generative AI applications, to enhance customer service.
- The company is enhancing its interconnected experience, including marketing the speed of delivery and rolling out a new feature on its website called Magic Apron, a generative AI tool.
- The SRS acquisition is expected to accelerate growth with professional customers and establish the company as a leading specialty trade distributor.
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Recent Developments and Market Sentiment:
- The earnings call for Q1 2025 highlighted that the SRS acquisition contributes to overall sales growth but also presents a near-term headwind to gross margin due to a change in mix.
- Management expressed confidence in the fundamentals of home improvement and the health of the homeowner consumer, citing the aging housing stock and rising home equity as positive factors.
- Analysts are closely monitoring the impact of tariffs on the cost of goods and pricing strategy.
- The company is focused on diversifying its global sourcing strategy to mitigate potential tariff impacts.
- The SEC filings indicate that the company is closely monitoring developments with tariffs and other trade policy matters and has taken actions to diversify its global supply chain.
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Risks and Threats:
- Intense competition in the home improvement retail industry poses a significant risk.
- Failure to identify and respond to changing customer needs and preferences could negatively impact sales.
- Disruptions in the supply chain and distribution network could lead to product shortages and increased costs.
- Cybersecurity threats and data privacy/security risks could damage the company's reputation and result in financial losses.
- Macroeconomic conditions, including the impact of high interest rates on home improvement demand, could pressure sales.
- The company entered into a civil consent decree in 2021 with the EPA related to lead-safe work practices, and is in discussions with the EPA regarding potential penalties.
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Valuation Analysis:
- Enterprise Value to EBITDA was 16.24 as of 2025-04-30, above the industry average of 13.91.
- Enterprise Value to Sales was 2.59 as of 2025-04-30, above the industry average of 2.06.
- These metrics suggest that the company may be overvalued relative to its sales and earnings.
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Price Performance:
- The stock price has fluctuated between approximately $353 and $378 from May 1, 2025, to June 27, 2025.
- The Home Depot, Inc. (HD) has generally underperformed the Consumer Discretionary Select Sector SPDR Fund (XLY) across most of the measured periods. Over the past year, HD returned 3.92% compared to XLY's 17.72%.
- Year-to-date, HD underperformed Tractor Supply Co. (TSCO) by 6.8% but outperformed Lowe's Companies, Inc. (LOW) by 3.63%.
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Future Outlook:
- The company reaffirmed its fiscal 2025 guidance, expecting total sales growth of approximately 2.8% and comp sales growth of approximately 1%.
- Gross margin is expected to be approximately 33.4%, essentially flat compared to fiscal 2024.
- Operating margin is projected at approximately 13%, with an adjusted operating margin of approximately 13.4%.
- Diluted EPS is expected to decline approximately 3%, and adjusted diluted EPS is expected to decline approximately 2% compared to fiscal 2024.
- Capital expenditures are planned at approximately 2.5% of sales for fiscal 2025.
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Summary:
- The Home Depot is the leading home improvement retailer with strong returns on assets, equity, and invested capital.
- However, the company faces challenges including decelerating revenue growth, tightening liquidity, and high financial leverage.
- The SRS acquisition is a key strategic initiative to enhance growth with professional customers, but it also introduces near-term margin headwinds.
- Key strengths include market dominance and efficient use of resources. Weaknesses include decelerating growth and high debt. Opportunities include expanding the Pro ecosystem and diversifying the global supply chain. Threats include intense competition, macroeconomic headwinds, and regulatory risks.
- The company's financial health is mixed, with strong profitability metrics offset by liquidity concerns and high leverage.
- Critical factors for future performance include managing operating expenses, integrating SRS effectively, and diversifying the global supply chain.
- Areas requiring further monitoring include liquidity and solvency ratios, as well as the impact of macroeconomic conditions on home improvement demand.
- Overall, Home Depot presents a complex investment profile with strong fundamentals but also significant risks and challenges. The company's valuation appears high relative to its sales and earnings, and its growth potential is balanced against identified risks.
Price history
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Fundamentals
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Insights
- Home Depot's revenue growth is decelerating, and rising operating expenses are squeezing profit margins, indicating potential challenges in maintaining profitability.
- The company's liquidity position is tightening, as evidenced by the declining current ratio and working capital, which could pose risks in meeting short-term obligations.
- High financial leverage, as indicated by the debt-to-equity ratio, increases financial risk and the company relies heavily on debt financing.
- Despite these challenges, Home Depot's return on assets, return on equity, and return on invested capital are all significantly higher than industry averages, indicating efficient use of resources.
- The SRS acquisition is a key driver of changes in investing and financing cash flows and is expected to accelerate growth with professional customers.
Analysis
- Revenue
- Revenue growth is decelerating, as indicated by the 3-year CAGR (2.22%) being lower than the 5-year CAGR (7.77%).
- The most recent YoY growth rate (7.33%) is also slightly lower than the 5-year CAGR, suggesting a potential continued slowdown.
- The company's sales revenue is significantly higher than the industry average, reflecting its market dominance.
- Profitability
- Gross profit margin (31.77%) is below the industry average (38.85%), indicating higher costs of goods sold.
- Net profit margin (8.61%) is above the industry average (5.93%), suggesting efficient expense management after accounting for COGS.
- EBITDA margin (15.37%) is also above the industry average (12.53%), indicating strong operational profitability.
- Profitability metrics, including net profit margin and EBITDA margin, are trending downward, indicating potential challenges in maintaining profitability.
- Liquidity
- The current ratio (1.09) is below the industry average (1.4), indicating potential liquidity issues.
- The quick ratio (0.28) is also below the industry average (0.48), suggesting difficulty in meeting short-term obligations without relying on inventory.
- Working capital is trending downward, further indicating a tightening liquidity position.
- Solvency
- The debt-to-equity ratio (770.47) is slightly above the industry average (762.94), indicating high financial leverage.
- The debt/EBITDA ratio (2.05) is higher than the industry average (1.29), suggesting a higher level of debt relative to earnings.
- Long-term debt remains substantial, indicating reliance on debt financing.
- Operational Efficiency
- Increasing accounts receivable and inventories may indicate challenges in efficient asset utilization.
- The company's return on assets (16.41%), return on equity (299.52%), and return on invested capital (25.68%) are all significantly higher than industry averages, indicating efficient use of resources.
- Enterprise Value to Sales and Enterprise Value to EBITDA are above the industry average, suggesting that the company may be overvalued relative to its sales and earnings.
- Cash Flow Analysis - Net operating cash flow is decreasing, which could impact the company's ability to fund future investments and shareholder returns. - Capital expenditures are increasing, reflecting investments in growth initiatives. - The SRS acquisition has significantly impacted investing and financing cash flows.
- Risk Factors
- High financial leverage, as indicated by the debt-to-equity ratio, increases financial risk.
- Declining liquidity, as indicated by the current ratio, could pose challenges in meeting short-term obligations.
- Decelerating revenue growth and rising operating expenses could pressure future profitability.
- Future Outlook
- Monitor liquidity and solvency ratios closely to assess financial stability.
- Focus on managing operating expenses to improve profitability.
- Evaluate the impact of the SRS acquisition on long-term growth and profitability.
- Diversifying the global sourcing strategy is crucial for mitigating potential tariff impacts and maintaining competitive pricing.
- Maturing the Pro ecosystem, particularly through the integration of SRS and the expansion of trade credit programs, represents a significant growth opportunity.
- Profitability
Financial statements
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Public filings
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- The Home Depot has solidified its position as the world's largest home improvement retailer, with a focus on providing a seamless interconnected shopping experience for both DIY and professional customers.
- The acquisition of SRS in fiscal 2024 represents a strategic move to accelerate growth with professional customers and expand the company's presence in specialty trade distribution.
- While the company has faced some macroeconomic headwinds, including the impact of high interest rates on home improvement demand, it has demonstrated resilience through diversifying its global supply chain and investing in its digital and physical capabilities.
- Key risks include intense competition, changing customer preferences, execution of strategic initiatives, supply chain disruptions, cybersecurity threats, and the potential for further macroeconomic volatility.
- The company's strong cash flow generation has enabled it to fund growth initiatives, pay dividends, and maintain a disciplined approach to capital allocation, though the pause in share repurchases may signal a more cautious stance.
Core Business and Operations:
- The Home Depot, Inc. is the world's largest home improvement retailer, operating 2,347 stores in the U.S., Canada, and Mexico as of the end of fiscal 2024
- The company sells a wide assortment of building materials, home improvement products, lawn and garden products, décor products, and facilities maintenance, repair and operations (MRO) products both in stores and online
- The company also provides services including home improvement installation services and tool and equipment rental
- In fiscal 2024, the company acquired SRS, a leading residential specialty trade distribution company engaged in the distribution of roofing, landscape, and pool products to professional contractors
Industry and Market Trends:
- The home improvement retail industry is highly competitive, fragmented, and evolving, with competition from traditional brick-and-mortar, multichannel, and exclusively online retailers
- Key competitive factors include customer experience, price, product availability and innovation, and delivery capabilities
- The company faces risks from changing customer preferences and expectations, macroeconomic conditions, and evolving regulatory requirements related to data privacy, sustainability, and human capital management
Recent Events:
- In fiscal 2024, the company acquired SRS for $18.0 billion to accelerate growth with professional customers and establish itself as a leading specialty trade distributor
- The company paused share repurchases in March 2024 in anticipation of the SRS acquisition and has not resumed share repurchases as of the latest filing
- The company has been closely monitoring developments with tariffs and other trade policy matters, and has taken actions to diversify its global supply chain
Risk Factors:
- Intense competition in the home improvement retail industry
- Failure to identify and respond to changing customer needs and preferences
- Risks related to the execution of the company's interconnected retail strategy and strategic initiatives
- Disruptions in the supply chain and distribution network
- Cybersecurity threats and data privacy/security risks
- Macroeconomic conditions, including the impact of high interest rates on home improvement demand
Legal Matters:
- The company entered into a civil consent decree in 2021 with the EPA related to lead-safe work practices in its installation services business, and is in discussions with the EPA regarding potential penalties
- The company received a notice of violation in 2023 from the Washington Department of Ecology related to the sale of a prohibited refrigerant, which was resolved with the payment of a $1.6 million penalty
Management's Discussion and Analysis:
- Net sales increased 4.5% in fiscal 2024 to $159.5 billion, driven by the SRS acquisition and new store openings, partially offset by negative comparable sales
- Gross profit margin remained flat at 33.4% in fiscal 2024, as lower transportation costs and shrink were offset by the inclusion of SRS
- SG&A expenses increased as a percentage of net sales, reflecting higher payroll costs and lower legal-related benefits
- The company generated $19.8 billion in operating cash flow in fiscal 2024, which was used to fund the SRS acquisition, capital expenditures, dividends, and debt repayments
- Return on invested capital (ROIC) decreased to 31.3% in fiscal 2024 from 36.7% in fiscal 2023, primarily due to higher debt and equity from the SRS acquisition
Earnings calls
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Earnings Report 2025Q1 (2025-05-20)
Key takeaways
- Sourcing Diversification is Key: Home Depot's proactive approach to diversifying its global sourcing strategy is crucial for mitigating potential tariff impacts and maintaining competitive pricing.
- Pro Customer Growth is a Priority: The company's focus on maturing its Pro ecosystem, particularly through the integration of SRS and the expansion of trade credit programs, represents a significant growth opportunity.
- Macroeconomic Uncertainty Remains a Headwind: Despite positive trends in consumer sentiment and home equity, persistent macroeconomic uncertainty and high interest rates continue to pressure larger remodeling projects.
- SRS Acquisition Impact: While the SRS acquisition contributes to overall sales growth, it also presents a near-term headwind to gross margin due to a change in mix.
- Inventory Management is Optimized: Home Depot's inventory levels are well-positioned to support sales growth, with a focus on in-stock availability and efficient distribution.
Focus of management’s prepared remarks
- Global Sourcing Strategy: More than 50% of purchases are sourced in the U.S. The company is actively diversifying its global supply chain, aiming to have no single country outside the U.S. represent more than 10% of purchases within 12 months.
- Homeowner Health and Market Fundamentals: The homeowner consumer remains healthy, with rising home prices and record levels of home equity. The aging housing stock (55% of homes are 40 years or older) drives demand for maintenance and updates.
- Investment in Associates: The company is focused on taking care of associates by providing them with the tools and knowledge they need to serve customers effectively. This includes leveraging tools like Pocket Guide and investing in additional training opportunities, such as certifications for live goods associates.
- Pro Ecosystem Maturation: The company is focused on maturing its Pro ecosystem to better serve Pros working on large, complex projects. SRS is now managing the trade credit program, and the company is seeing tremendous results as they onboard Pros to the program.
- Spring Events and Product Assortment: The company is well-positioned for spring with a strong product assortment, including live goods. They are partnering with global, regional, and local breeders to ensure they have the right plants with the right attributes to ensure that their customers will have success in their gardens.
- Digital Platform Enhancement: The company is investing in enhancing its interconnected experience, including marketing the speed of delivery and rolling out a new feature on its website called Magic Apron, a generative AI tool that helps customers find answers related to their home improvement projects.
Focus of the analyst Q&A
- Demand Environment:
- Overall demand environment and potential impact of weather and news cycles.
- Whether uncertainty impacted sales trends in Q1.
- Potential acceleration of sales trends given flat existing home sales and replacement cycles.
- SG&A Expenses:
- Reasons for the sizable increase in SG&A growth in Q1.
- Expectations for SG&A growth for the remainder of the year.
- Comp Sales Guidance:
- Rationale behind reaffirming the comp sales guidance for the year.
- Potential for exceeding the guidance given the April exit rate and May commentary.
- SRS Impact:
- Impact of order management and trade credits on SRS sales.
- Relative strength of SRS's businesses between roofing, pool, and landscape.
- Expectations for SRS getting layered into the comp.
- Tariffs:
- Impact of tariffs on the cost of goods and pricing strategy.
- Whether tariffs would offset productivity, supply chain, and shrink benefits.
- Deferred Demand:
- Potential for deferred demand in home improvement to benefit sales growth.
- Pro Customer:
- Update on the rollout of extra capabilities for the complex Pro in the 17 markets.
- Relative performance of those markets.
- Inventory:
- Drivers behind the increase in inventory.
- Inventory positioning ahead of the summer and holidays.
- Easter Timing Shift:
- Impact of the Easter timing shift on comp sales.
- Whether exit rates continue in May.
- Pricing:
- Competitive environment regarding pricing.
- Price spreads versus peers.
- Elasticity models and the level of tariff that would preclude holding price constant.
- Housing Market:
- Regional performance and impact of softening housing activity and home prices.
- Shrink:
- Where the accrual sits today, maybe relative to 2019.
- How much longer that benefit can continue to help you.
- Weather and Hurricane Recovery:
- Performance by region, given weather volatility.
- Whether hurricane recovery efforts provided a benefit in Q1.
Summary
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Financial Performance
Home Depot reported Q1 2025 sales of $39.9 billion, a 9.4% increase year-over-year. Comp sales decreased by 0.3%, while U.S. comps increased by 0.2%. Adjusted diluted earnings per share (EPS) were $3.56, down from $3.67 in Q1 2024. The results were in line with company expectations, despite unfavorable weather and foreign exchange rate pressures.
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Revenue Drivers
Sales growth was driven by customer engagement in smaller projects and spring events. Pro sales outpaced DIY sales, with strength in categories like gypsum, decking, and concrete. Online sales leveraging digital platforms increased by approximately 8%. The SRS acquisition contributed to overall sales growth. Unfavorable weather in February negatively impacted sales, particularly in the northern regions and Canada.
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Profit Margins and Cost Management
Gross margin was 33.8%, a decrease of approximately 35 basis points year-over-year, primarily due to a change in mix from the SRS acquisition, partially offset by lower shrink and supply chain productivity. Operating margin was 12.9%, compared to 13.9% in Q1 2024. Adjusted operating margin, excluding intangible asset amortization, was 13.2%, down from 14.1% in Q1 2024. Operating expense as a percentage of sales increased by approximately 70 basis points to 20.9%.
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Guidance and Outlook
The company reaffirmed its fiscal 2025 guidance, expecting total sales growth of approximately 2.8% and comp sales growth of approximately 1%. Gross margin is expected to be approximately 33.4%, essentially flat compared to fiscal 2024. Operating margin is projected at approximately 13%, with an adjusted operating margin of approximately 13.4%. Diluted EPS is expected to decline approximately 3%, and adjusted diluted EPS is expected to decline approximately 2% compared to fiscal 2024. Capital expenditures are planned at approximately 2.5% of sales for fiscal 2025.
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Strategic Initiatives
Home Depot is focused on diversifying its global sourcing strategy, aiming for no single country outside the U.S. to represent more than 10% of purchases within 12 months. The company is maturing its Pro ecosystem, leveraging SRS for trade credit programs. Investments are being made in associate training and tools, including generative AI applications, to enhance customer service. An expanded relationship with BEHR to exclusively offer KILZ branded primer products was announced.
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Management Commentary
Management expressed confidence in the fundamentals of home improvement and the health of the homeowner consumer. They highlighted the aging housing stock and rising home equity as positive factors. They emphasized the importance of taking care of associates to drive customer satisfaction and sales. Management acknowledged pressure on larger remodeling projects due to the higher interest rate environment but remains bullish on long-term growth prospects.
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Industry and Market Conditions
Home Depot operates in a highly fragmented, addressable market of approximately $1 trillion. The company noted that the housing turnover remains at decades-long lows due to high interest rates, impacting larger remodeling projects. They believe there is a net cumulative shortfall of about $50 billion in home improvement spending, representing future growth potential.
Comparative analysis
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Benchmarks (as of 2025-06-13)
Consumer Discretionary Select Sector SPDR Fund (XLY)
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Performance Comparison:
- The Home Depot, Inc. (HD) has generally underperformed the Consumer Discretionary Select Sector SPDR Fund (XLY) across most of the measured periods. For instance, over the past year, HD returned 3.92% compared to XLY's 17.72%, a significant underperformance of 13.8%. Similarly, over the last three years, HD returned 36.89% compared to XLY's 53.64%, underperforming by 16.75%.
- The consistency of HD's underperformance relative to XLY suggests that factors specific to HD or the home improvement retail sector may be influencing its returns compared to the broader consumer discretionary market.
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Risk and Return Analysis:
- The annualized returns show that HD has provided lower returns than XLY over the 1, 2, and 3-year periods. For example, the 3-year annualized return for HD is 11.04%, while for XLY it is 15.39%, indicating that XLY has offered a higher return on investment.
- The annualized volatility data indicates that XLY generally exhibits higher volatility than HD. For example, in Q2 2022, XLY's volatility ranged from 47.45% to 44.96%, while HD's volatility ranged from 35.76% to 30.88%. This suggests that XLY's higher returns come with greater price fluctuations.
- 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 XLY experienced a larger peak-to-trough decline, suggesting a higher risk profile compared to HD.
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Risk-Adjusted Performance:
- The Sharpe Ratio analysis reveals that XLY generally offers a better risk-adjusted return than HD. For example, in Q4 2023, XLY's Sharpe Ratio ranged from 1.91 to 0.23, while HD's ranged from 0.72 to -0.02. This suggests that XLY provides a higher return per unit of risk compared to HD.
- The Beta value of HD has generally been around or below 1, while XLY's Beta has consistently been above 1. This indicates that HD is less sensitive to market movements than XLY. For instance, in Q1 2025, HD's Beta ranged from 0.77 to 0.6, while XLY's Beta ranged from 1.25 to 1.12.
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Overall Assessment:
- Based on the analysis, Consumer Discretionary Select Sector SPDR Fund (XLY) has generally outperformed The Home Depot, Inc. (HD) over the past three years. While XLY exhibits higher volatility and a larger maximum drawdown, it also offers higher annualized returns and a better risk-adjusted return as indicated by the Sharpe Ratio. HD, on the other hand, demonstrates lower volatility and Beta, suggesting a more stable investment but with lower overall returns.
- A significant trend is the consistent underperformance of HD relative to XLY across various time frames, indicating that broader market factors or sector-specific dynamics may be influencing HD's performance. Investors seeking higher growth potential may prefer XLY, while those prioritizing stability and lower risk may find HD more suitable.
Peers Price History(as of 2025-06-13)
- Performance Comparison:
- The Home Depot (HD) has shown mixed performance compared to its peers. Year-to-date, HD underperformed Tractor Supply Co. (TSCO) by 6.8% but outperformed Lowe's Companies, Inc. (LOW) by 3.63%. Over a longer horizon, such as the 1-year and 2-year periods, HD outperformed both TSCO and LOW. However, over 3 years, HD underperformed TSCO by 1.69% but outperformed LOW by 7.98%.
- Risk and Return Analysis:
- The annualized returns show that HD outperformed LOW over 1 year (by 6.3%) and 2 years (by 9.52%). However, HD's 3-year annualized return was slightly lower than TSCO's (by 0.45%).
- In terms of annualized volatility, TSCO generally exhibited higher volatility than HD and LOW, especially in 2022 and 2023. However, by 2024 and 2025, the volatility of all three companies converged.
- The maximum drawdown for HD was -34.73% on 2022-09-26, which is more severe than TSCO's -24.13% on 2023-10-27 but similar to LOW's -33.86% on 2022-06-16. This suggests that HD and LOW have a higher risk profile in terms of potential peak-to-trough declines.
- Risk-Adjusted Performance:
- Tractor Supply Co. (TSCO) generally exhibited higher Sharpe Ratios compared to The Home Depot, Inc. (HD) and Lowe's Companies, Inc. (LOW) for much of the analyzed period, indicating better risk-adjusted returns. As of Q2 2025, all three companies had declining Sharpe ratios. Tractor Supply Co. (TSCO) had negative Sharpe ratios in Q2 2025, indicating underperformance relative to the risk-free rate.
- The Home Depot, Inc. (HD) generally exhibited a lower risk profile compared to the market, as indicated by its Beta values mostly below 1. Lowe's Companies, Inc. (LOW) showed a slightly higher risk profile, with Beta values closer to or above 1 during certain periods. As of Q2 2025, the Beta values for all three companies were below 1 and relatively similar, suggesting a decreased sensitivity to market movements.
- Overall Assessment:
- The Home Depot (HD) has demonstrated mixed performance relative to its peers. While it has shown strong returns over the 1-year and 2-year periods, its year-to-date performance and maximum drawdown figures suggest higher short-term risk. Tractor Supply Co. (TSCO) generally exhibited better risk-adjusted returns (Sharpe Ratio) and lower volatility, but its recent Sharpe Ratios have declined. Lowe's Companies, Inc. (LOW) has shown higher volatility and a slightly higher risk profile (Beta).
- Recent trends indicate a convergence in volatility among the three companies and a decrease in sensitivity to market movements (Beta). The declining Sharpe Ratios in Q2 2025 suggest that all three companies are facing challenges in generating risk-adjusted returns.
Peers Fundamentals(as of 2025-04-30)
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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.
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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.
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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.
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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).
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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.
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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.
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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.
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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.
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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.
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