The stock market has largely recovered the brunt of its novel-coronavirus-induced losses. By and large, most companies outside of sectors such as travel have regained ground. However, outside of the tech sector, few blue-chip stocks have exceeded their February 2020 peaks yet. That’s what makes Home Depot (NYSE:HD) stock so exciting.
Shares just hit new all-time highs a few weeks ago. With it at $246 now, Home Depot is up 13% year-to-date and 20% since the trailing year.
Simply put, Home Depot is unstoppable. Even a virus and ensuing massive economic bust haven’t done anything to stop the company’s unrelenting climb. What makes Home Depot so special, and how long can it keep up this winning streak? Read on.
Good Coronavirus Defensive Play
Home Depot did better than most during the acute phase of the coronavirus. Its stores provided essential services. It’s not only that though. With people stuck at home, many focused on sprucing up their quarantine locations.
With free time, stimulus checks, and cabin fever, many folks turned to home improvement projects, according to Google Search data. People are also building home gardens and trying out things such as raising chickens. All of these sorts of activities tend to require substantial tools and supplies. You can find these, in turn, at Home Depot.
While the most severe phase of the virus may be winding down, the uptick in demand for building supplies is likely to persist. For one, hobbies such as gardening take months or years to bear fruit, so projects started in March will keep needing inputs such as fertilizer long into the future.
Furthermore, now that the economy is bouncing back, it appears that the housing market is far stronger than expected in much of the country. This should result in rising demand for Home Depot products as people get their homes in tip-top shape to list them on the market.
Solid Omnichannel Effort
The issue with retail stocks is that even if they look alright now, they could lose their position in coming years as e-commerce adoption accelerates. However, Home Depot is well-positioned to profit as this transition continues.
One of Home Depot’s strong points is that it did a good job of building out its e-commerce presence early. Many competitors overlooked the internet, as many building supply products don’t make for easy online shopping. Shipping, in particular, is a challenge given the bulky nature of many home improvement goods.
As omnichannel becomes the name of the game, however, Home Depot is thriving. The virus truly put this in perspective. Consumers didn’t want to go to stores unnecessarily; thus, it motivated shoppers to familiarize themselves with Home Depot’s online options and then go to the store for pickup. Since Home Depot has nearly 2,000 U.S. locations, it is accessible to most potential shoppers.
Furthermore, Home Depot, given its massive store size, is ideally suited for an omnichannel world. Its stores serve as perfect warehouse and distribution outlets for online shoppers. Meanwhile, they also function as a grand showroom for everything that the company offers.
While Amazon (NASDAQ:AMZN) and other general merchandisers can compete with some of Home Depot’s business lines, it’s hard to compete with Home Depot’s all-in-one solution. Whatever you need for the home, garage, or garden, Home Depot has it in stock or online.
The Verdict on HD Stock
There’s a ton to like about Home Depot. It’s well-positioned both for the current economic situation and also for the longer term. Home Depot has one of the most competent and well-planned e-commerce strategies out there. As such, Amazon won’t crush it in coming years.
The only thing not to love is the price of Home Depot’s stock. With shares hitting fresh all-time highs earlier this month, Home Depot is sporting a rich valuation. It sells for nearly 25-times earnings, so there’s no discount here. But in this case, it’s worth paying up for the company’s quality and safety.
When a retail company can make it through even the 2020 stock market crash in flying colors, you know you’ve got a good thing. In fact, the virus may bolster Home Depot’s long-term position as more consumers familiarize themselves with Home Depot’s digital options.
And the stay-at-home orders appear to have created a significant swing in consumer demand toward improving their homes and gardens. That, in turn, will result in more green for HD stock owners.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, he held no positions in any of the aforementioned securities.
