Home Depot (NYSE:HD) stock has been under pressure since the start of the year. The general economic downturn coupled with the company’s earnings and outlook has pressured HD stock and investors are looking for a way out. Shares of the home retailer are down 26% since the start of the year. It comes as a rude awakening for HD bulls because the company built a very impressive reputation during the pandemic. People were stuck at home and therefore, they turned to home improvement projects, leading to a surge in sales. For fiscal 2021, sales are $19 billion, or up 14.4% from a year earlier. That is a big jump, but not a surprising one since we were in the middle of the home improvement trend.
However, sales in 2021’s fourth quarter grew by over 11%. The figure is respectable, but we can see a slowdown happening. As the economy opens up and people return to their normal routines, the company will face tough year-over-year comps.
The main spot of contention for bulls is the guidance from the company. Management expects a slight increase in sales this year, with a single-digit jump in earnings per share. It makes sense given several factors. First, sales growth is slowing and comps are likely to be challenging this year. Next, the supply chain issues will also take time to improve. We are also experiencing the same issues with inflation that the U.S. Federal Reserve is looking to work on by raising interest rates. The environment has been volatile recently, which raises questions about the consequences of such moves.
Is HD Stock a Buy?
Right now, Home Depot is a high-quality business trading at a discount. Home Depot has been around for more than 20 years and has a history of creating value for its investors. This investment has also paid consistent dividends since 1987. Home Depot announced a 15% increase for its quarterly dividend, reinforcing its reputation as an income play.
Despite slow sales in its do it yourself (DIY) segment, the company still envisions rapid growth in the Pro segment. Home Depot announced a goal to reach $200 billion in sales and estimates Pro customers will represent a huge segment of the overall pie. The company is going in a new direction with its brand image by focusing on its high-end contractor users. This allows for potential profits to be made and increases brand value.
Currently, HD stock is in a bit of flux due to external issues and its weak outlook. Home Depot is having a tough time in the housing market, but they are still successful and profitable enough to be worth investing in. As long as you keep your money with them for the long-term, their business will continue to thrive. And if you are an income investor, its 2.5% yield is icing on the cake.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
