The Gap Between HD Stock And Its Own Numbers

Yahoo Finance ·

Home Depot’s stock trades in the middle of its peer group on valuation, but its performance and growth have fallen to the back of the pack. Has the market gotten this retailer’s ranking wrong? Home Depot’s (HD) stock, trading around $316.18 a share, has delivered a painful -20% return over the last twelve months. Its closest rival, Lowe’s, has fared similarly, returning -21%. Yet the market values Home Depot at 22.1 times earnings , a significant premium to the 16.8 times earnings it assigns to Lowe’s, a company that grew revenue more than three times faster over the last twelve months. This raises a critical question for investors: is Home Depot’s premium valuation justified when its growth and stock performance rank near the bottom of its peer group? HD Trades At A Premium To Some Faster-Growing Rivals — But Not All The numbers reveal a stark disconnect. Home Depot’s revenue grew just 2.5% over the last twelve months, placing it last among its four key competitors. Amazon, for instance, grew revenue at 15.8% yet trades at a lower multiple of 20.3 times earnings. The only clear operational advantage for Home Depot is its best-in-group operating margin of 12.4%, well ahead of Lowe’s at 11.4% and narrowly ahead of Amazon at 12.1%. But that profitability has not translated into investor returns, with the stock’s -20% performance lagging far behind the S&P 500’s +21% gain over the same period. Management points to signs of strength, highlighting that its professional-customer segment posted positive comps and that online sales increased 11% in the latest quarter. The company is pushing to improve its service, recently launching “Express Delivery nationwide with delivery on tens of thousands of products in 3 hours or less.” For investors who prefer exposure to the broader consumer discretionary sector rather than a single name, an ETF like XLY offers one alternative. A One-Time Refund Is Masking New Cost Pressures The market’s skepticism may be rooted in the quality of Home Depot’s recent earnings. The company’s latest quarter was boosted by $685 million in tariff refunds, a roughly 145-basis-point benefit to gross margin, without which HD’s operating margin would fall below Amazon’s. Management was clear that these funds are being used to “offset unplanned and rising cost pressures throughout the year.” This suggests underlying profitability is facing pressures that the headline numbers temporarily conceal. Investors are right to ask tough questions about the sustainability of these results, a topic explored in a recent analysis of the company’s earnings call . The business environment remains challenging. Management acknowledges that “consumer uncertainty and housing affordability continue to pressure demand for larger home improvement projects.” With what they term “frozen housing conditions,” the company is leaning on smaller repair and maintenance jobs to drive sales. The market seems to be pricing in the risk that these new cost pressures will persist long after the one-time tariff benefit is gone, weighing on future margins. The Real Test Is The Guided Operating Margin The debate boils down to whether Home Depot’s superior profitability is a durable advantage or an artifact of a one-time gain. The company’s own forecast provides the clearest test. Management has reaffirmed its fiscal 2026 GAAP operating margin guidance of 12.4% to 12.6%, essentially flat with the current 12.4%, and separately guides adjusted operating margin (which excludes intangible amortization) to 12.8% to 13.0%. Hitting this range would prove the company can navigate the tough housing market and rising costs, justifying its premium valuation. A miss, however, would confirm the market’s fears that the company’s operational edge is narrowing. Hitting the GAAP range would prove the company can navigate the tough housing market and rising costs, justifying its premium valuation. This piece pulled one thread; our full peer-by-peer dashboards for HD lay every metric side by side, updated daily. The Best Stock In The Group Is Still A Single Stock Ranking a company against its peers sharpens the picture, and whichever name wins is still a single stock. Concentration tends to arrive by accident rather than by decision. What your largest position would do to your net worth is exactly what the Trefis Wealth team computes, with the same rules-based systematic discipline that runs our High Quality Portfolio. Request a free vulnerability audit of your biggest positions .

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