With people stuck indoors during the worst of the coronavirus pandemic, Home deposit (NYSE:HD) was a surprise winner. Consumers have increasingly shifted their focus to home improvement projects, leading to big gains for this high-end brick-and-mortar retailer. The trend has not yet abated.
In the most recent quarter (ended May 1), Home Depot reported 3.8% year-over-year revenue growth. That’s on top of 32.7% growth in the first quarter of 2021. What’s more impressive is that total sales in the quarter of $38.9 billion, which beat analyst forecasts, were a record for any first quarter in the company’s history.
Does this performance make Home Depot stocks to buy? Let’s take a closer look at this important question.
Thrive in a difficult environment
Despite the uncertain economic environment, with the surge inflation, rising interest rates and the war in Ukraine on investors’ minds, Home Depot continues to enjoy strong demand. The robust housing market deserves some credit here, as it provides a strong macro foundation for business to thrive.
According to real estate brokerage data red fin, median U.S. home prices in April rose 15.4% year-over-year. Rising home values encourage people to spend money on home improvement projects because they view the down payment as an investment. Additionally, higher mortgage rates, which increase the cost of buying a home, encourage consumers who may have already locked in lower rates to look to upgrades and repairs rather than selling their homes. and move.
Home Depot has also so far seen minimal impact from inflation plaguing the rest of the economy. While the number of transactions decreased by 8.2% compared to the first quarter of fiscal 2021, the average ticket size increased by 11.4%. Large purchases, those over $1,000, were up 12.4% year over year.
Investors should understand that once again the growth in sales of professionals, including contractors, plumbers, electricians, etc., has overtaken DIY customers, signaling consumers’ propensity to tackle larger and more complex projects requiring expert assistance.
The favorable situation has prompted management, led by new CEO Ted Decker, to raise its guidance for fiscal 2022. The Home Depot is now expected to grow revenue and same-store sales by 3% for the full year. , all in diluted earnings per share in the middle numbers. This stands in stark contrast to other major retailers, such as walmart and Targetwhich recently announced weak quarters who crushed their shares.
Is the stock a buy?
Home Depot has not been immune to the market rout this year. As of May 31, its stock is down 27% in 2022. Shareholders might be inclined to chase after this poor performance, but that would be a mistake.
That’s because Home Depot shares have again produced a total return of 98% over the past five years, beating the S&P500 during the same period. Investors now have the opportunity to pick up a winning stock that is currently trading at a price-earnings ratio of just over 19, near decade lows.
Not only did Home Depot thrive during the worst of the pandemic, but it’s now seeing growth in addition to tough comparisons. This shows the solidity of the company and its customers, whatever the economic environment. It also demonstrates that the importance of the home in consumers’ lives is an enduring trend that investors can follow and benefit from.
The last quarter has once again proven that Home Depot is a great company. Therefore, it’s probably a good idea to buy stocks now.
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Home Depot, Redfin and Target. The Motley Fool recommends the following options: $22 May 2022 Long Calls on Redfin, $26 May 2022 Short Calls on Redfin, and $28 May 2022 Short Calls on Redfin. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.