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Here's Why Investors Should Stay Away From HD Supply

William Bias profile picture
William Bias


  • HD Supply distributes maintenance, repair and operations supplies.
  • HD Supply’s interest expense serves as a hindrance to profitability and cash flow.
  • HD Supply’s liabilities exceed assets.

It's important for long-term investors to develop a guide for doing their investment research. Over the years I have developed questions to guide me in my thinking when researching the publicly traded universe. Right now, let's talk about HD Supply (NASDAQ: NASDAQ:HDS).

1.) What does the company do?

When you buy shares in a company you effectively become part owner of that company. Therefore, it's important for an investor to understand what a company sells. HD Supply distributes maintenance, repair and operations or MRO supplies. It caters to individuals and organizations that need building supplies, water infrastructure supplies such as pipes and conduits, electrical parts, and construction supplies. HD Supply believes it is a market leader in these types of products. The company, in its present form, got its start when Home Depot (NYSE: HD) bought MRO distributor Warehouse/America Corporation in 1997. Home Depot sold HD Supply in 2007 to an investment fund.

2.) What do the fundamentals look like?

Investors should also look for companies that grow revenue and free cash flow over the long-term, retaining some of that cash for reinvestment back into the business and for economic hard times. Excellent revenue and free cash flow growth serve as catalysts for superior long-term gains. HD Supply expanded its revenue 38% since 2011. The company's growth initiatives, characterized by acquisitions and volume growth, contributed to top line expansion. However, the company turned losses every year since 2011 with the exception of FY 2014. HD Supply bled free cash flow from FY 2012 to FY 2014, according to Morningstar. Heavy indebtedness has created huge amounts of interest expense, causing the company to go into the red.

Things are starting to look up for HD Supply and its shareholders in FY 2015. In the most recent quarter, HD Supply expanded its revenue 6% year-over-year. HD

This article was written by

William Bias profile picture
I have been analyzing stocks since 1992 and a freelance writer since 2012.

Analyst’s Disclosure: The author is long HD, GWW. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (2)

Bruce Wilds profile picture
In the past my company bought from HD Supply, but they have raised prices to where we seldom bother.
Nightside profile picture
I actually believe HDS is overvalued. I am short. Their current hedge fund owners didnt buy the company to hold for 10 years. And HDS currently operates in an economic bubble, which to means any current year profits cant be repeated.
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