The Home Depot Inc. (HD Quick QuoteHD - Free Report) has been witnessing a downtrend in recent months, owing to soft engagement for big-ticket discretionary categories, such as kitchen and bath remodels, as higher interest rates discouraged financing-dependent projects. However, the company has maintained its leadership position in the home improvement market through ongoing investments in technology, digital capabilities and supply-chain efficiency.

Backed by its strong market position, HD commands a forward 12-month price-to-earnings (P/E) multiple of 24.05X, higher than the Zacks Retail – Home Furnishing industry average of 20.93X. This multiple is making the stock appear relatively expensive, raising concerns about whether the stock's valuation is justified.

The high price-to-sales (P/S) ratio of Home Depot, an Atlanta, GA-based home improvement retailer, adds to investor unease, especially considering its low Value Score of D, which suggests that it may not be a strong value proposition at current levels. The company has a forward 12-month P/S ratio of 2.23X compared with the industry’s 1.52X.

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Home Depot’s Premium Valuation Surpasses Peers

At 24.05X forward 12-month P/E, HD is trading at a valuation much higher than its competitors. Its competitors, such as Lowe’s Companies Inc. (LOW Quick QuoteLOW - Free Report) , Ethan Allen Interiors Inc. (ETD Quick QuoteETD - Free Report) and Williams-Sonoma (WSM Quick QuoteWSM - Free Report) , are delivering solid growth and trade at more reasonable multiples. Lowe’s, Ethan Allen and Williams-Sonoma have respective forward 12-month P/E ratios of 18.06X, 10.35X and 18.59X — all lower than Home Depot. At such levels, the HD stock’s valuation seems out of step with its growth trajectory.

The stock’s premium valuation suggests that investors have strong expectations for Home Depot. However, the stock currently seems somewhat overvalued. As a result, investors might be hesitant to buy at these elevated levels and prefer to wait for a more favorable entry point.

While HD’s share price has decreased 4.1% in the past month, it has outperformed the broader industry’s 8.6% decline. At this point, many investors are questioning whether Home Depot’s stock is a buy after the recent dip. However, the stock still underperforms the Retail-Wholesale sector and the S&P 500’s growth of 2.2% and 0.4%, respectively, in the same period.

Moreover, HD’s performance is notably stronger than that of its competitors, Lowe’s, Ethan Allen and Williams-Sonoma, which have declined 7.3%, 5.7% and 12.8%, respectively, in the year-to-date period. 

HD Stock’s YTD Price Performance

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Currently trading at $373.08, the stock trades 15.1% below its 52-week high mark of $439.37 and 15.2% above its 52-week low of $323.93. The technical indicators show that the HD stock is trading below its 50-day moving average, indicating a bearish sentiment.

Home Depot Stock Trades Below 50-Day Moving Average

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HD’s Mixed Bag: Pro & Digital Gain, Big Projects are on Hold

Home Depot continues to ride its growth trajectory by deepening its focus on professional (Pro) customers, enhancing digital capabilities and reinforcing supply-chain efficiencies. The integration of SRS Distribution has been particularly impactful, with the trade credit program rollout showing early promise and helping boost engagement with large-scale Pro contractors. Categories such as building materials, decking and electrical showed solid performance, and digital sales climbed 8% year over year in the first quarter of fiscal 2025, aided by initiatives like faster delivery and AI tools such as “Magic Apron,” which is enhancing online engagement and conversion rates.

Despite ongoing economic volatility, Home Depot remains optimistic about the long-term fundamentals of the home improvement market. The aging housing stock in the United States, combined with record levels of home equity and a generally healthy consumer base, positions the company well to benefit from future remodeling cycles. Moreover, the company’s diversified global sourcing strategy, which now ensures that no single country outside the United States will represent more than 10% of purchases, provides added resilience amid rising geopolitical and tariff uncertainties.

The biggest drag on Home Depot’s growth remains the macroeconomic backdrop. High mortgage rates and low housing turnover continue to suppress the demand for larger, financed remodeling projects like kitchen and bathroom renovations. While Home Depot saw strength in smaller DIY and outdoor projects, especially in March and April, big-ticket sales remain soft. Overall, first-quarter fiscal 2025 comps declined 0.3%, with U.S. comps only slightly positive. Persistent caution among homeowners around large expenditure is holding back the broader remodeling cycle that the company has been anticipating.

While Home Depot reaffirmed its fiscal 2025 guidance, management acknowledged FX pressures and economic caution as constraints. Still, the first quarter’s exit rate, improved customer engagement and strong SRS performance point to momentum heading into the second quarter and beyond. Executives also highlighted a $50-billion estimated shortfall in cumulative home improvement spending, indicating pent-up demand. If interest rates ease and macro sentiment stabilizes, Home Depot will be well-positioned to capture outsized growth by leveraging its scale, Pro relationships and omnichannel capabilities.

Home Depot’s Estimates Revision Trend

Despite the cautious outlook, Home Depot’s EPS estimates for fiscal 2025 have shown an uptrend in the past 30 days. The Zacks Consensus Estimate for HD’s fiscal 2025 EPS moved up 0.2% in the last 30 days. Meanwhile, the consensus mark for fiscal 2026 EPS has inched up 0.7% in the past 30 days.

For fiscal 2025, the Zacks Consensus Estimate for HD’s sales implies 3.1% year-over-year growth, whereas the EPS estimate indicates a 1.3% year-over-year decline. The consensus mark for fiscal 2026 sales and earnings suggests 4.4% and 9.3% year-over-year growth, respectively.

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How to Play the HD Stock Now?

Home Depot stands on solid long-term ground, supported by its leadership in the Pro segment, strategic digital investments and a resilient home improvement market, fueled by aging housing stock and strong homeowner equity. The integration of SRS Distribution is proving valuable in strengthening Pro relationships, while improved customer sentiment and steady demand for smaller projects add to the underlying momentum. However, near-term caution persists. Elevated mortgage rates and economic uncertainty are still weighing on big-ticket, financed projects, limiting the upside in the short run. 

While the stock has recently pulled back, its premium valuation compared with peers remains a sticking point for value-focused investors. Despite modest estimate revisions and a healthy business model, many may find the current price tag hard to justify without a clear catalyst for reacceleration. As such, a neutral stance appears appropriate until stronger signs of recovery in larger project spending emerge or valuation becomes more compelling. The company currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.