The Home Depot Inc. (HD Quick QuoteHD - Free Report) stock has gained 19.5% in the past six months, marking an underperformance from the broader industry’s 20.5% rise and the Retail-Wholesale sector’s growth of 22%. However, it outperformed the S&P 500’s rally of 12.4%.

However, the HD stock has shown remarkable growth compared with its industry peers like Lowe’s Companies Inc. (LOW Quick QuoteLOW - Free Report) , Builders FirstSource (BLDR Quick QuoteBLDR - Free Report) and Beacon Roofing Supply’s gains of 18%, 14.1% and 12%, respectively, in the past six months.

HD Stock’s 6-Month Price Performance

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At the current price of $414.42, the HD stock trades at a discount of 5.7% to its 52-week high of $439.37. The current stock price reflects a 28% premium from its 52-week low mark.

HD trades above its 50 and 200-day moving averages, signaling strong upward momentum and price stability. This technical strength indicates positive market sentiment and confidence in the company's financial health and prospects.

HD Stock Trades Above 50-Day & 200-Day Moving Averages

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What’s Driving HD’s Stock Momentum?

Home Depot has been experiencing steady growth, fueled by its leadership position in the home improvement market, and ongoing investments in technology, digital capabilities and supply-chain efficiency through its "One Home Depot" plan. Home Depot’s stock rally also reflects its focus on customer service. Do-it-Yourself support and professional (Pro) contractor services make it a go-to destination for homeowners and industry professionals.

With a vast store network, broad product selection and growing online presence, HD effectively meets increasing consumer demand. The company’s interconnected retail strategy and strong technology infrastructure have consistently boosted web traffic. HD is also advancing investments to build a Pro ecosystem.

Home Depot’s well-managed inventory, high employee engagement, and expanding online sales and home delivery services are expected to continue driving market share growth. The acquisition of SRS Distribution Inc. further strengthened its role in building material distribution, and enhanced its services for professional contractors and tradespeople.

Home Depot’s third-quarter fiscal 2024 results reflected a top-line recovery, combating the continued pressures on consumer demand for certain big-ticket, discretionary categories, primarily driven by contributions from the recently acquired SRS Distribution. The third quarter of fiscal 2024 marked the first full quarter of sales from SRS, which is projected to generate $6.4 billion in revenues during the roughly seven months Home Depot will own it this fiscal year.

HD provided optimistic sales and EPS views for fiscal 2024, driven by the year-to-date performance, expectations of hurricane restoration-related demand, an additional 53rd week, and the inclusion of SRS results. Additionally, the U.S. Federal Reserve’s recent interest rate reduction is expected to spur increased housing and home repair activities, aiding Home Depot’s performance.

The company expects sales to grow 4% year over year, including a $2.3-billion sales boost from the 53rd week and $6.4 billion in incremental sales from SRS. Comparable sales (comps) are projected to decline 2.5%. Adjusted EPS is expected to fall 1%, with the 53rd week contributing 30 cents per share to EPS in fiscal 2024.

HD’s Upward Estimate Trajectory

Driven by the upbeat outlook, the company’s estimates have shown an uptrend in the past 30 days. The Zacks Consensus Estimate for HD’s fiscal 2024 and 2025 earnings per share rose 0.6% and 0.5%, respectively, in the last 30 days. The upward revision in earnings estimates indicates that analysts have continued faith in the company’s growth potential.

For fiscal 2024, the Zacks Consensus Estimate for HD’s sales implies 3.9% year-over-year growth, while the EPS estimate indicates a 0.2% year-over-year decline. The consensus mark for fiscal 2025 sales and earnings indicates 3.1% and 3.5% year-over-year growth, respectively.

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Can Ongoing Headwinds Derail the Stock?

Home Depot is witnessing broad-based pressure across the business, attributed to persistent challenges related to higher interest rates and increased macroeconomic uncertainty, resulting in softened consumer demand for home improvement projects, particularly certain big-ticket discretionary categories. This trend, which started in first-quarter fiscal 2024, has been weighing on Home Depot’s performance for the past few quarters.

In third-quarter fiscal 2024, HD noted that big-ticket comparable transactions (those above $1,000) decreased 6.8% year over year, affected by softer engagement in larger discretionary projects like kitchen and bath remodels, which are usually funded through financing. Mixed trends were noted in third-quarter fiscal 2024, which led to year-over-year EPS and comps declines. A decline in comparable customer transactions, primarily led by soft sales of big-ticket discretionary categories, hurt overall comps.

Apart from the soft consumer demand, the higher interest rate environment has been pulling down Home Depot’s profitability. Management noted that the higher interest rates environment witnessed at the beginning of 2024 is expected to continue in the near term.

HD’s Premium Valuation

With the stock steadily ticking up, the company is currently trading at a forward 12-month P/E multiple of 26.68X, exceeding the industry average of 24.67X and the S&P 500’s average of 22.85X. At current levels, Home Depot’s stock valuation looks expensive.
 
The premium valuation indicates that investors have high expectations for HD’s performance and growth potential. Investors may be skeptical about buying the stock at these premium levels and may wait for a better entry point.

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Is it Wise to Buy Home Depot Now?

Home Depot is well-positioned for long-term growth, supported by strong Pro customer sales and growth initiatives like the "One Home Depot" plan. However, challenges like high interest rates, soft big-ticket product demand and broader economic pressures are likely to weigh on its performance in the near term.

While Home Depot’s strengths, an upbeat fiscal 2024 outlook and positive estimate revisions inspire investor optimism, caution is advised. The stock's premium valuation and prevailing headwinds call for a thorough evaluation of recent developments before making investment decisions. For current shareholders, holding onto this Zacks Rank #3 (Hold) stock may prove advantageous in the long term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.