Home Depot Inc (HD) stock initially rose on Tuesday morning in premarket trading to nearly all-time highs, and rightfully so: The home improvement retailer announced revenue and earnings per share that easily topped expectations, while also raising full-year 2016 guidance.
But those gains were short-lived, and Wall Street quickly began profit-taking; within minutes of the 9:30 a.m. market opening, HD stock was trading down about 2%.
Those losses pared as the morning progressed, but seeing Home Depot stock fall today at all, in any respect, just doesn’t make any sense. The earnings call was optimistic, and if you look at the numbers, you’ll see absolutely no reason for concern.
Pretty silly, isn’t it?
HD Stock Owners: Ignore Wall Street
If you’re an HD stock owner, take this morning’s decline with a grain of salt. The first quarter was great, and while consumers aren’t by any means spending beaucoup bucks at the mall — Macy’s, Inc. (M), Sears Holdings Corp (SHLD), J C Penney Company Inc (JCP) and others are all languishing — they are spending on their homes.
“If you feel your home is an investment and not an expense, you spend differently on your home,” explained Home Depot CFO Carol Tome.
That’s a good thing for HD stock owners, as evidenced by the strength of Q1 2016. Revenue rose 9% year-over-year to $22.76 billion, well above the $22.39 billion analysts were looking for. Earnings per share clocked in at $1.44, up 19% annually and eight cents better than the $1.36 per share Wall Street wanted.
Perhaps the most rosy news for HD stock owners, however, was the increased guidance. Management now expects EPS to clock in at $6.27 in FY 2016, up from a range of $6.12 to $6.18. Revenue growth is also expected to come in at 6.3%, up from an expected range of 5.1% to 6%.
Looking at the numbers, there’s quite literally no reason for Home Depot shares to be slumping this morning. On the earnings call, there were a few anxious questions about whether real estate was at another peak and whether margins will be as juicy when HD starts to get more into delivery, but those were really just looking for a reason to be negative.
While it’s true that HD stock isn’t blatantly cheap — shares trade at 19 times forward earnings — they don’t scream “overvalued” either. Home Depot is easily the biggest home improvement retailer in the world, and it’s still growing sales faster than Lowe’s Companies, Inc. (LOW), which is expected to report revenue growth of 5.3% when it announces Wednesday morning.
On top of that, HD stock rewards shareholders with a 2.1% dividend. It’s a solid blue chip all the way through, and unlike many other brick-and-mortar retailers, there’s little chance that Amazon.com, Inc. (AMZN) can erode its business, which will continue to thrive because it’s inherently local.
Ignore today’s profit-taking, which amounts to little more than Wall Street shenanigans.
As of this writing, John Divine was long AMZN stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
