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Is Now the Time to Buy Home Depot Stock at Its Current Price?
Read MoreHide Full Article
Key Takeaways
HD's Q3 U.S. comps rose just 0.1%, with October comps down 1.7% as demand recovery remains elusive.
Forward P/S of 2.04 keeps HD at a valuation premium despite weaker growth and margin compression.
Pro segment shows strain amid lower project backlogs and slower SRS growth due to minimal storm activity.
The Home Depot, Inc. (HD - Free Report) has long been the dominant force in the home improvement market, supported by its vast scale, brand strength, and strong connection to both professional contractors and DIY customers. Yet, the company now finds itself navigating a softer demand environment, particularly in discretionary and large-scale projects, where consumer hesitation remains evident despite easing interest and mortgage rates. The recent pullback in the stock price has kept investors on their toes, prompting many to consider whether the current valuation presents a compelling entry point or if holding the stock remains the safer bet for now.
HD Stock Performance
Shares of Home Depot closed at $351.13 yesterday, marking a 16.9% decline over the past three months compared with the industry’s 21.9% drop. The stock now sits 17.7% below its 52-week high of $426.75 reached in September.
Home Depot, which competes with Lowe’s Companies Inc. (LOW - Free Report) , FGI Industries Ltd. (FGI - Free Report) and Floor & Decor Holdings, Inc. (FND - Free Report) , has been trading below its 50-day simple moving average since Oct. 1, highlighting the recent loss of momentum.
While Lowe’s Companies and Floor & Decor have fallen 9.5% and 30.2%, respectively, FGI Industries has surged 117.2% over the same period, indicating the contrasting performance among Home Depot’s key competitors.
Image Source: Zacks Investment Research
Unlocking Home Depot’s Valuation
Despite the recent drop in the stock price, Home Depot’s valuation remains elevated relative to the broader industry. Home Depot currently trades at a forward 12-month price-to-sales (P/S) multiple of 2.04, which positions it at a premium compared to the industry’s average of 1.38. Moreover, HD is trading slightly below its 12-month median P/S of 2.24X, indicating that the stock has not corrected enough to offer a meaningful valuation cushion if growth remains muted.
This premium positioning is especially notable when compared to peers like Lowe’s Companies (with a forward 12-month P/S ratio of 1.51), FGI Industries (0.12) and Floor & Decor (1.33).
Image Source: Zacks Investment Research
Home Depot’s Downside Risks Now Outweigh Its Upside Potential
Home Depot’s recent trends indicate that the company is facing structural headwinds, weaker demand visibility and margin pressure. The softness in housing turnover, a key driver of repair-and-remodel spending, remains a notable drag. With management citing housing activity at nearly 40-year lows and consumer behavior still pressured by affordability constraints, the company delivered a modest 0.2% increase in comparable sales in the third quarter, with U.S. comps up only 0.1%, sharply down from 1% and 1.4% increases, respectively, in the preceding quarter. This sluggish growth shows that the expected demand recovery in the second half has not materialized.
Home Depot acknowledged that a lack of storms significantly impacted categories such as roofing, power generation and plywood in the third quarter, with October comparable sales falling 1.5% after modest gains in September and August. More concerning was the sharp decline in the U.S. market, where monthly comparable sales dropped markedly. After a slight positive trend earlier in the quarter, U.S. comparable sales fell 1.7% in October. Additionally, the slight increase in the average ticket of 1.8% was offset by a 1.6% decrease in customer transactions, indicating a loss of traffic that the business has yet to address. For fiscal 2025, Home Depot now anticipates comparable sales growth to be slightly positive, down from its previous forecast of 1% growth.
The high-value Pro customer segment is showing signs of weakness, with management noting reduced backlogs for larger projects, suggesting capital constraints or lower confidence among professional builders. This is compounded by unexpected challenges in the recently acquired SRS business, a crucial part of the company's long-term Pro expansion strategy. Due to a significant lack of storm activity, growth expectations for this acquired asset have been lowered from a mid-single-digit outlook to a low single-digit performance for the full year.
Margins are also under more pressure and directly affect earnings. Operating margin shrank to 12.9% in the third quarter from 13.5% a year earlier, while the adjusted operating margin declined to 13.3% from 13.8%. The company’s expense base continues to become less efficient against slower sales growth, and its full-year outlook reflects this challenge. Management now predicts fiscal 2025 adjusted EPS to fall about 5% from fiscal 2024 compared with its earlier estimate of a 2% decline. It expects the adjusted operating margin to be 13%, a sharp drop from 13.8% last year.
Further, over the trailing 12 months, the Return on Invested Capital (ROIC), a key measure of management’s ability to effectively deploy shareholder capital, dropped to 26.3% from 31.5%. At the same time, the company’s total merchandise inventories have increased to $26.2 billion, an addition of $2.3 billion from the last year. This inventory buildup has led to less efficient inventory turnover, falling from 4.8X to 4.5X. Finally, rising debt levels and increased interest expenses further complicate the investment outlook. Home Depot’s financial obligations have pushed net interest expense toward an estimated $2.3 billion for fiscal 2025, up from $2.1 billion in the last fiscal year.
How Estimates Are Shaping Up for HD
Over the past 30 days, the Zacks Consensus Estimate for the current fiscal year has moved down by 46 cents to $14.55, while the estimate for the next fiscal year has fallen 88 cents to $15.38.
Image Source: Zacks Investment Research
How SRS and Blueprint Takeoffs Are Strengthening HD’s Runway
Home Depot’s long-term growth strategy is increasingly shaped by its expanding Pro ecosystem, strengthened through the additions of SRS and GMS. These platforms give the company a deeper reach into specialty building materials and create natural cross-sell pathways between retail and wholesale channels. As SRS demonstrates resilience in challenging categories and GMS broadens access to drywall, ceilings and framing products, the combined network serves as a powerful engine for market-share gains with contractors who prefer a fully integrated supplier.
The company is also enhancing its focus on professional contractors by introducing a new AI-powered tool designed to reshape how Pro customers plan and execute complex projects. The company highlighted that its blueprint takeoffs tool utilizes advanced AI and proprietary algorithms to analyze construction plans and generate material estimates with far greater speed and accuracy than traditional methods. This technology replaces the labor-intensive process that earlier took Pro customers weeks to complete.
By incorporating this advanced technology, Home Depot is reinforcing its position as the go-to destination for all project requirements, from initial planning to material delivery. This development marks a significant step forward in catering to the Pro category. This progress allows Home Depot to differentiate its Pro offerings not only through product assortment but also through digital infrastructure.
How to Play HD Stock: Buy, Hold or Sell?
While Home Depot continues to advance its long-term Pro strategy through assets like SRS and innovations such as AI-driven blueprint takeoffs, the near-term picture remains weighed down by softer demand, pressured margins and a less supportive housing backdrop. The stock’s current valuation does little to offset these challenges, making the risk-reward profile less compelling at today’s pricing. For current shareholders, maintaining a cautious stance and closely monitoring stabilization in demand, inventory efficiency and margin trends may be prudent before increasing exposure. Meanwhile, potential investors may find it sensible to wait for clearer signs of recovery. Home Depot currently carries a Zacks Rank #4 (Sell).
Image: Bigstock
Is Now the Time to Buy Home Depot Stock at Its Current Price?
Key Takeaways
The Home Depot, Inc. (HD - Free Report) has long been the dominant force in the home improvement market, supported by its vast scale, brand strength, and strong connection to both professional contractors and DIY customers. Yet, the company now finds itself navigating a softer demand environment, particularly in discretionary and large-scale projects, where consumer hesitation remains evident despite easing interest and mortgage rates. The recent pullback in the stock price has kept investors on their toes, prompting many to consider whether the current valuation presents a compelling entry point or if holding the stock remains the safer bet for now.
HD Stock Performance
Shares of Home Depot closed at $351.13 yesterday, marking a 16.9% decline over the past three months compared with the industry’s 21.9% drop. The stock now sits 17.7% below its 52-week high of $426.75 reached in September.
Home Depot, which competes with Lowe’s Companies Inc. (LOW - Free Report) , FGI Industries Ltd. (FGI - Free Report) and Floor & Decor Holdings, Inc. (FND - Free Report) , has been trading below its 50-day simple moving average since Oct. 1, highlighting the recent loss of momentum.
While Lowe’s Companies and Floor & Decor have fallen 9.5% and 30.2%, respectively, FGI Industries has surged 117.2% over the same period, indicating the contrasting performance among Home Depot’s key competitors.
Image Source: Zacks Investment Research
Unlocking Home Depot’s Valuation
Despite the recent drop in the stock price, Home Depot’s valuation remains elevated relative to the broader industry. Home Depot currently trades at a forward 12-month price-to-sales (P/S) multiple of 2.04, which positions it at a premium compared to the industry’s average of 1.38. Moreover, HD is trading slightly below its 12-month median P/S of 2.24X, indicating that the stock has not corrected enough to offer a meaningful valuation cushion if growth remains muted.
This premium positioning is especially notable when compared to peers like Lowe’s Companies (with a forward 12-month P/S ratio of 1.51), FGI Industries (0.12) and Floor & Decor (1.33).
Image Source: Zacks Investment Research
Home Depot’s Downside Risks Now Outweigh Its Upside Potential
Home Depot’s recent trends indicate that the company is facing structural headwinds, weaker demand visibility and margin pressure. The softness in housing turnover, a key driver of repair-and-remodel spending, remains a notable drag. With management citing housing activity at nearly 40-year lows and consumer behavior still pressured by affordability constraints, the company delivered a modest 0.2% increase in comparable sales in the third quarter, with U.S. comps up only 0.1%, sharply down from 1% and 1.4% increases, respectively, in the preceding quarter. This sluggish growth shows that the expected demand recovery in the second half has not materialized.
Home Depot acknowledged that a lack of storms significantly impacted categories such as roofing, power generation and plywood in the third quarter, with October comparable sales falling 1.5% after modest gains in September and August. More concerning was the sharp decline in the U.S. market, where monthly comparable sales dropped markedly. After a slight positive trend earlier in the quarter, U.S. comparable sales fell 1.7% in October. Additionally, the slight increase in the average ticket of 1.8% was offset by a 1.6% decrease in customer transactions, indicating a loss of traffic that the business has yet to address. For fiscal 2025, Home Depot now anticipates comparable sales growth to be slightly positive, down from its previous forecast of 1% growth.
The high-value Pro customer segment is showing signs of weakness, with management noting reduced backlogs for larger projects, suggesting capital constraints or lower confidence among professional builders. This is compounded by unexpected challenges in the recently acquired SRS business, a crucial part of the company's long-term Pro expansion strategy. Due to a significant lack of storm activity, growth expectations for this acquired asset have been lowered from a mid-single-digit outlook to a low single-digit performance for the full year.
Margins are also under more pressure and directly affect earnings. Operating margin shrank to 12.9% in the third quarter from 13.5% a year earlier, while the adjusted operating margin declined to 13.3% from 13.8%. The company’s expense base continues to become less efficient against slower sales growth, and its full-year outlook reflects this challenge. Management now predicts fiscal 2025 adjusted EPS to fall about 5% from fiscal 2024 compared with its earlier estimate of a 2% decline. It expects the adjusted operating margin to be 13%, a sharp drop from 13.8% last year.
Further, over the trailing 12 months, the Return on Invested Capital (ROIC), a key measure of management’s ability to effectively deploy shareholder capital, dropped to 26.3% from 31.5%. At the same time, the company’s total merchandise inventories have increased to $26.2 billion, an addition of $2.3 billion from the last year. This inventory buildup has led to less efficient inventory turnover, falling from 4.8X to 4.5X. Finally, rising debt levels and increased interest expenses further complicate the investment outlook. Home Depot’s financial obligations have pushed net interest expense toward an estimated $2.3 billion for fiscal 2025, up from $2.1 billion in the last fiscal year.
How Estimates Are Shaping Up for HD
Over the past 30 days, the Zacks Consensus Estimate for the current fiscal year has moved down by 46 cents to $14.55, while the estimate for the next fiscal year has fallen 88 cents to $15.38.
Image Source: Zacks Investment Research
How SRS and Blueprint Takeoffs Are Strengthening HD’s Runway
Home Depot’s long-term growth strategy is increasingly shaped by its expanding Pro ecosystem, strengthened through the additions of SRS and GMS. These platforms give the company a deeper reach into specialty building materials and create natural cross-sell pathways between retail and wholesale channels. As SRS demonstrates resilience in challenging categories and GMS broadens access to drywall, ceilings and framing products, the combined network serves as a powerful engine for market-share gains with contractors who prefer a fully integrated supplier.
The company is also enhancing its focus on professional contractors by introducing a new AI-powered tool designed to reshape how Pro customers plan and execute complex projects. The company highlighted that its blueprint takeoffs tool utilizes advanced AI and proprietary algorithms to analyze construction plans and generate material estimates with far greater speed and accuracy than traditional methods. This technology replaces the labor-intensive process that earlier took Pro customers weeks to complete.
By incorporating this advanced technology, Home Depot is reinforcing its position as the go-to destination for all project requirements, from initial planning to material delivery. This development marks a significant step forward in catering to the Pro category. This progress allows Home Depot to differentiate its Pro offerings not only through product assortment but also through digital infrastructure.
How to Play HD Stock: Buy, Hold or Sell?
While Home Depot continues to advance its long-term Pro strategy through assets like SRS and innovations such as AI-driven blueprint takeoffs, the near-term picture remains weighed down by softer demand, pressured margins and a less supportive housing backdrop. The stock’s current valuation does little to offset these challenges, making the risk-reward profile less compelling at today’s pricing. For current shareholders, maintaining a cautious stance and closely monitoring stabilization in demand, inventory efficiency and margin trends may be prudent before increasing exposure. Meanwhile, potential investors may find it sensible to wait for clearer signs of recovery. Home Depot currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.