Don't Scapegoat Bob Nardelli for Home Depot's Stagnant Stock

Herb Greenberg wrote a wonderful column that said something I’ve wanted to say for a long time: that blaming Bob Nardelli for the lackluster performance of Home Depot’s (HD) stock is just plain silly. Since Nardelli took over Home Depot in 2000, Home Depot’s earnings have grown at an amazing clip of 20% a year and revenues over 15%, net margins have increased, and return on capital has gone up every year. This is not the scorecard of a failed CEO.

Those who are looking at Home Depot’s stock performance and blaming Nardelli need to separate between the analysis of a company and analysis of a stock. Home Depot’s stock has gone nowhere not because the company fundamentally did not perform well -- the CEO’s main responsibility. The stock has not gone anywhere because it was overpriced in late 2000. As often happens, investors got overexcited about this great company and drove HD’s valuation to a ridiculous level of 46 times earnings.

If you bought Home Depot in late 2000, blame yourself (if you overpaid for the company), not the CEO. I don’t know if any other CEO would have done a better job running this giant. As I have mentioned many times before, other large growth companies such as Johnson & Johnson (JNJ), Microsoft (MSFT) and Wal-Mart (WMT) -- can't forget that one, of course -- were lifted by investors to religious status in the late 90s and have been coming back to earth ever since. Mr. Nardelli, if you are reading this, ask for another bonus. You did a terrific job.

HD 1-year chart:

Disclosure: Vitaliy N. Katsenelson holds positions in WMT, MSFT, and JNJ.