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Can Home Depot Stock Rise Further?

Thomas Scarlett

The obituaries that were written for the retail sector may have been premature. The shares of several major chain stores, including Home Depot (NYSE:HD) stock, have gained significant ground during the latest rally. Home Depot stock is now at an all-time high. But HD stock still has many positive catalysts. so it’s not too late to buy the shares.

The hardware titan’s most recent earnings report was stellar. Its second-quarter earnings per share came in at $3.05, substantially higher than analysts had forecast and about 35% above the same period a year earlier. Its revenue also increased sharply, surpassing $30 billion for the first time. “We were very pleased with our record second-quarter sales and earnings,” Home Depot’s CEO, Craig Menear, commented.

The company’s same-store sales, an important metric in the retail sector, jumped 8% year-over-year. Several other large retailers, including Walmart (NYSE:WMT) and Target (NYSE:TGT), also reported large increases in same-store sales. But Home Depot’s same-store sales increase was the highest in its sector.

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Blue Collar Gains And Demand After Hurricanes

Of course, the entire retail sector was boosted by exceptional U.S. economic growth this year. But Home Depot stock looks better positioned than many of its retail peers. One reason this is the case is that The Washington Post just reported that “blue-collar jobs are growing at their fastest rate in more than 30 years, helping to fuel a hiring boom in many small towns and rural areas.” In other words, the parts of the country that have traditionally provided the lion’s share of Home Depot’s customers are enjoying an increase in their disposable income.

Exurban and rural consumers are more likely to own their own homes, and to do the kind of do-it-yourself projects that require power tools and other hardware. With many smaller hardware stores having been wiped out by a combination of big-box retailers and online services, Home Depot is now, along with Lowe’s (NYSE: LOW) one of only two stores that sell such products in many if not most places.

Hurricane season seems to get more ferocious each year, and Home Depot has been known to benefit from a spike in sales when the residents of areas that have been hit by hurricanes return to repair their homes and businesses. These days, as noted above, most of its competition comes from Lowe’s, but Home Depot has delivered more consistent results over the last decade than its main competitor.

Home Depot Stock Has Rallied But Still Isn’t Very Expensive

Home Depot has produced several strong earnings reports in a row, and Wall Street has taken notice. Home Depot stock is up more than 60% in the last 24 months. That’s almost double the pace of the U.S. stock market.

Despite the sharp increase in the price of Home Depot stock, the shares are trading at 24 times the company’s earnings. That’s not very expensive for a company that combines a good track record and strong growth potential the way this one does. Home Depot’s  dividend yield of 2% is nothing special, but there is very little chance it will be reduced.

So while HD stock has already gained considerably in 2018, Home Depot has enough positive catalysts to be a worthy addition to most growth portfolios.

As of this writing, the author did not own shares of any of the companies in this article.

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