With a recent daily loss of 4.06%, yet a 3-month gain of 6.85%, The Home Depot Inc (HD, Financial) presents a complex case for investors. The company's Earnings Per Share (EPS) stand at 15.1, but the question remains: is The Home Depot (HD) modestly overvalued? This article delves into the valuation analysis, providing insights to investors on whether The Home Depot's stock price reflects its true value.
Company Overview
The Home Depot Inc (HD, Financial) is a titan in the home improvement retail industry, operating over 2,300 stores across North America. With a vast array of products and services tailored for building materials, home improvement, and garden care, The Home Depot has cemented its position as the world's largest retailer in its niche. The company's market cap stands at a formidable $364.70 billion, with sales reaching $152.70 billion. However, a crucial aspect of an investor's analysis is comparing the stock price, currently at $368.03, with the GF Value, which is set at $330.22, indicating a modest overvaluation. This comparison sets the stage for a deeper evaluation of The Home Depot's intrinsic value.
Understanding GF Value
The GF Value is a proprietary calculation used to estimate the fair value of a stock. It incorporates historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and projected business performance. The GF Value Line, depicted on our summary page, represents what we consider to be the fair market value of a stock. The Home Depot's stock price, relative to the GF Value Line, suggests a modest overvaluation, implying that long-term returns may not align with business growth expectations.
Financial Strength Analysis
Investing in companies with solid financial strength is critical to avoid permanent capital loss. The Home Depot's cash-to-debt ratio of 0.07 places it lower than 87.3% of its peers in the Retail - Cyclical industry. This positions The Home Depot's financial strength at a fair 5 out of 10, indicating a need for cautious review by investors.
Profitability and Growth
Profitability is less risky in companies with a track record of consistent earnings. The Home Depot boasts a remarkable 10-year profitability streak, with an operating margin of 14.21%, surpassing 86.99% of its industry competitors. This strong profitability is reflected in its 9 out of 10 rating. When it comes to growth, The Home Depot's 3-year average annual revenue growth of 7.5% and EBITDA growth rate of 9% are commendable, although there's room for improvement within the Retail - Cyclical industry.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is essential for evaluating profitability. The Home Depot's ROIC of 29.78 is significantly higher than its WACC of 9.67, indicating efficient cash flow generation relative to capital investment.
Conclusion
In summary, The Home Depot (HD, Financial) appears modestly overvalued when considering its current market price. Despite this, the company maintains a fair financial condition and exhibits strong profitability. Its growth outperforms more than half of its industry peers. For a detailed exploration of The Home Depot's financials, interested investors can review the 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
