Question: Why would investors consider buying Home Depot stock (NYSE: HD) at 25 times earnings, while Lowe’s stock (NYSE: LOW) trades at a lower multiple of 19? The answer becomes clear when you look at these key points:
- Growth: Home Depot’s revenue has been growing at a quicker pace—over 4% in the past twelve months—while Lowe’s revenue has declined by 3%. Furthermore, Home Depot posted approximately $160 billion in revenue in fiscal 2024, which is 90% higher than Lowe’s.
- Margins: Home Depot operates with profit margins above 13%, allowing more of its revenue growth to directly benefit shareholders. Comparatively, Lowe’s maintains an operating margin of about 11%.
- Tariffs: The exposure is fairly similar. Both companies face macroeconomic risks due to their reliance on globally sourced products, particularly from China, Canada, and Mexico, even though their customer base is largely in North America. Key product categories vulnerable to tariffs include lumber, steel, aluminum, plumbing fixtures, and various hardware tools.
Is Home Depot A Safe Bet?
Although some may see Home Depot as a “safe haven,” its performance during prior market downturns suggests otherwise. The stock declined more than 35% during the 2022 inflation-led downturn and fell nearly 38% during the 2020 pandemic. This indicates that HD may not be as defensive as perceived. Our dashboard How Low Can Stocks Go During A Market Crash highlights how key stocks performed across the last six market crashes.
That said, Home Depot has already seen a substantial pullback, falling from nearly $425 in January to around $354 as of April 10. For those looking for a potentially more stable and higher-performing alternative, the Trefis High Quality portfolio—which has delivered more than 91% in returns since inception—may be worth exploring, as shown in the HQ performance metrics.
Home Depot’s Strategic Initiatives Could Drive Growth
Home Depot continues to emphasize its Pro customer segment, with investments in digital tools, Pro Desk services, and in-store improvements. These enhancements are helping boost customer engagement as homeowners delay major renovations or seek financing due to higher interest rates. Home Depot’s scale enables robust investments in marketing, supply chain infrastructure, and omnichannel features—strengthening its market position.
Given that most U.S. homes are 31 to 60 years old, demand for renovations remains strong regardless of new home sales. Home Depot’s evenly split customer base between DIY and Pro clients allows it to benefit from both segments. In contrast, Pro customers account for only about 30% of Lowe’s sales, which may limit its upside in comparison.
Potential Risks to Consider
Despite its solid fundamentals, there are important risks associated with Home Depot. A major concern is the potential for earnings to miss expectations, particularly as cost pressures mount. In today’s cautious economic environment—marked by reduced R&D and expansion—Home Depot’s performance will hinge on cost control and sourcing flexibility.
Another risk lies in unexpected economic shocks, which could lead to steep declines. In a worst-case scenario, the stock could lose as much as 40%. Investors should resist the urge to panic sell, as doing so could damage long-term returns. Patience and strategic thinking remain crucial.
Long-Term Perspective
For long-term investors with a 3-5 year outlook and tolerance for market volatility, Home Depot at current levels could offer a compelling entry opportunity. Those looking to hedge market risks might benefit from the Trefis Reinforced Value Portfolio, which has consistently outpaced its all-cap benchmarks—including the S&P 500, S&P MidCap, and Russell 2000. Consulting with a financial advisor experienced in navigating bear markets can also add value. Long-term wealth often favors those who remain calm and strategic amid market turbulence.
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