Home Depot (NYSE:HD) stock fell after reporting earnings that beat expectations. While the broader market rose overnight, HD stock investors were looking to the future and a housing market where prices are falling for the first time in years.
For the quarter ending in September, Home Depot had earnings of $4.3 billion, or $4.24 per share fully diluted, on revenue of $38.9 billion. Earnings were up 5.1% and revenue rose 5.6% from a year ago.
Home Depot is expected to open Nov. 15 at $305 per share with a market capitalization of about $314 billion. It currently has a price-to-earnings multiple of 19.4 times and a dividend that yields 2.3%.
The Impact of Home Prices
Analysts said investors were spooked by the failure of management to raise guidance, which calls for growth to slow to 3%. Many are worried people will stop spending on home improvement in the face of inflation.
Some of the fall was a “give back” of previous gains. The stock bottomed below $270 in late October but rose to nearly $315 by Nov. 11. The stock is down 25% for 2022 against an average S&P 500 loss of 17.5%.
Some analysts even advised against buying the recent dip, noting a fall in home sales and housing starts. Rising interest rates are cutting buyers out of the housing market, even while prices decline. Some are calling the last few years a “bubble” and expecting the biggest housing correction since the 1970s. When the cost of money is taken into account, homes today are less affordable than at any time since the early 1980s.
According to the Case-Shiller Index, housing prices fell 1.1% in August, the biggest fall since 2012. The market is highly localized, with San Jose prices down 10% but those in Miami up nearly 5%.
What Happens Next for HD Stock?
Home Depot is still generally loved by analysts. They see it as a long-term defensive play that regularly delivers increased earnings.
It’s hard to argue with them. Over the last five years, HD stock is up 83% and the dividend has doubled.
On the date of publication, Dana Blankenhorn did not hold (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.