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Home Depot - There's Some Upside, But Be Careful

Apr. 05, 2021 8:36 AM ETThe Home Depot, Inc. (HD)20 Comments


  • Home Depot is a great company that I've owned stock in since the pandemic drop of a little over a year ago. I've extended my position, but not that much.
  • I missed buying more at significant undervaluation, and the position has appreciated in the high double digits since my time of purchase.
  • A combination of growth, confidence in premium multiples/valuations and a strong history makes this company, if not significantly undervalued, a decent "BUY".
People shopping at The Home Depot in San Francisco bay area
Photo by Sundry Photography/iStock Editorial via Getty Images

The Home Depot (NYSE:HD) is a company I've written about a few times in the past, most notably in my undervaluation article. Since my Corona discount article, the company has outperformed the relevant index by quite a bit. In

This article was written by

Wolf Report profile picture

Wolf Report is a senior analyst and private portfolio manager with over 10 years generating value ideas in European and North American markets.

He is a contributing author for the investing group iREIT on Alpha where in addition to the U.S. market, he covers the markets of Scandinavia, Germany, France, UK, Italy, Spain, Portugal and Eastern Europe in search of reasonably valued stock ideas. Learn more.

Analyst’s Disclosure: I am/we are long HD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

While this article may sound like financial advice, please observe that the author is not a CFA or in any way licensed to give financial advice. It may be structured as such, but it is not financial advice. Investors are required and expected to do their own due diligence and research prior to any investment. Short-term trading, options trading/investment and futures trading are potentially extremely risky investment styles. They generally are not appropriate for someone with limited capital, limited investment experience, or a lack of understanding for the necessary risk tolerance involved. I own the European/Scandinavian tickers (not the ADRs) of all European/Scandinavian companies listed in my articles. Option Disclosure:

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Comments (20)

Up $25 in a month. You might call that “some upside”.
Todd Kenyon, CFA profile picture
Every time HD sells at these inflated PE's, you get a chance to buy it below 22x in the future. So I would look to buy when that happens, closer to 250. 15x very unlikely. I have owned it since the housing bust so way too much in gains to bother trading it on valuation- def a hold for me.
Gary J is Rich on AMZN profile picture
@Todd Kenyon, CFA

No. The savvy investor buys HD any time at any price rather than market timing guessing.
bigfish1977 profile picture
@Todd Kenyon, CFA 250$ you got to be kidding. Too many tailwinds behind HD. I dought you'll ever be able to pick it up under 300$ ever again. In fact, I bet we see 350$ before 250$. Remember when investing investors will pay a premium to own a leader. Look at a 3 year chart on HD you will see this sharp move higher happened before and becomes a new trading range, trading sideways after the move higher then eventually moving higher and higher.
Amitmn profile picture
@bigfish1977 I love it when people make such comments. I just received the same comment on MU never ever reaching $85 again and chances are it’ll blow above $100 any time soon and leave everyone crying... well guess what: yesterday it dropped to 84 (a week since that confident statement was published) and will possibly meet us all at 83 by the end of the day... there’s only upside waiting for the right price to come even if you miss on 90% of the opportunities because the 10% that you get right will make all your fortune!
W Scott profile picture
Agreed. Wish I had it on a watch list at the beginning of '21. ~7-8% ROR just doesn't cut it with better options out there and it seems like Lowes is going to nip at HDs heels.
jerryki profile picture
I'm a long-term holder, and agree that HD's somewhat ahead of itself, but selling covered calls makes it good enough to keep (just my opinion) based on the following:
just sold a 325 June call for $710, with HD at 314. If it's not exercised, that's (7.1/314) x 365/73days = 11% annual rate. And conceptually, with HD historically growing so rapidly, it's reasonable to impute a growth rate on top of that, even though 73 days is such a short period. So one can say that selling that covered call results in an annual return of say 11% from the call + 2% dividend + 6% growth rate (very conservative) = 19%. It's a lot more complex than that, to consider all the cases where it goes up a lot or down a lot, but on balance, that seems good enough to hold rather than sell.
Duras profile picture
We've been doing lots of remodeling and every contractor I know no longer uses Home Depot. Our own experience getting a refrigerator delivered was very very bad. Obviously the delivery men had not been vetted. They were sullen, rude and they tossed the box the refrigerator came in on our front yard before they left. Other people on Barron's have commented on how Home Depot delivery men would not remove a door on an appliance to get it through a door and how Lowe's delivery men did so without even being asked. In addition to this try calling Home Depot with a complaint. Wouldn't touch the stock. Lowe's should be the benefactor.
Gary J is Rich on AMZN profile picture

Me too. Every contractor I know uses HD.

if you have contractors that primarily use big box stores, your problems have already begun
Duras profile picture
@see.clay No problem. Using Amish contractors mainly, big box stores for small items with the exception of some appliances, that's where the problems with Home Depot came up. Also I have friends who are contractors and they tell stories. But I appreciate and agree with your comment. My hardwood floors were milled and finished by a small Amish company near Cuba NY, cost extra, but well worth it. The delivery experience with Home Depot was so bad it's hard to believe and I talked about that with various contractors and they had their stories, too.
Sharepro profile picture
I'm keen to you see your recommendations on 'companies that tick all of these boxes'.... Thanks.
Gary J is Rich on AMZN profile picture
Forget the market timing guessing nonsense. This is a buy (at any price) and hold stock. True for decades.
P373R profile picture
@Gary J is Rich on AMZN "buy at any price" stock only applies if you don't care about what your future returns might be - which Wolf obviously does care about (and so do I) while you don't.. So - agree to disagree, I guess.
Gary J is Rich on AMZN profile picture

""buy at any price" stock only applies if you don't care about what your future returns might be "

Yes makes sense lol duh
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