- Home Depot has a 35-year track record of solid growth.
- Home Depot offers safety in a bear market.
- Home Depot consistently outperforms rival Lowe's.
Home Depot is the home team in my hometown of Atlanta. Their offices are a few miles west of the intersection of I-285 and I-75, where the Atlanta Braves’ new stadium opens next year. Home Depot has been nearly as good for local investors as Coca Cola (NYSE:KO), the company that built this city as a marketing hub early in the 20th century. If you got in when Home Depot went public, in 1981, and just held on, less than a nickel will have turned into $115 by now, with 9 splits and a dividend now yielding 2% on all those shares. Even absent the dividend, the yield on your original Home Depot investment is nearly 330,000%.
This is the beauty of long-term investment. Find one good horse, put it away and ignore it, and you may become wealthy beyond your wildest dreams one day.
Yes, but should you buy the Home Depot stock today? It’s down 13.4% just since January, against a 9.3% drop in the S&P 500 average. The answer is, while you won’t get rich on it, yes.
Right now Home Depot’s market cap of $140 billion is holding up revenues of $83 billion/year. It should blow well by those numbers when it reports its annual figures in two weeks, because Home Depot had revenues of $68 billion for just the first three quarters and Christmas is usually in-line. (Home Depot’s best quarter is the spring, ending in May, when gardening starts and home improvement planning reaches a peak.)
Home Depot brought 8% of revenue to the net income line last quarter, which is slightly lower than average, and it is able to cover its 59 cent/dividend twice-over with those earnings, meaning it can cover its debt-to-assets ratio of nearly 0.5 (retailers always have a heavy debt load to maintain inventories) easily with cash in hand.
A lot of investors find Lowes (NYSE:LOW) to be a good alternate choice to Home Depot - the two companies are in the same business, and Lowe’s stock is a little cheaper on a Price/Earnings basis. But do not be fooled. Whether seen from a one-year, five-year or 10-year perspective, Home Depot has consistently outperformed its smaller rival (as our Harshal Patel pointed out last month in his piece Home Depot will continue to outperform Lowe's), with a management system that consistently turns out solid insider candidates for top jobs, like current CEO Craig Menear, who has been with the company since 1997. Home Depot Co-founders Bernard Marcus and Arthur Blank retired many years ago, the former to the role of local philanthropist like Coca-Cola’s legendary chair Robert Woodruff and the latter, to the ownership of the local pro football team, the Atlanta Falcons.
Having a piece of the home team makes this investor a hometown hero. You buy Home Depot on weakness and hang on to it for the long-term. I think now is a good time to get in on Home Depot.