Home Depot And Lowe's: A Textbook Example Of Quality Vs. Value

Marcel Knoop
1.36K Followers

Summary

  • Home Depot and Lowe's look similar at first. The deeper we dig, the more hints we find that HD is of higher quality.
  • HD outperformed LOW every single year except 2020 regarding same-store traffic growth.
  • The balance sheets are better than many people think, although there are some concerns for LOW.
  • Both companies generate high returns on capital but only HD grows the capital base (Capital Employed).
  • My valuation analysis leaves me to assume that HD is a bit overvalued while LOW is undervalued at current prices.
Home Depot Sales Slip, But Quarterly Earnings Still Beat Expectations

Joe Raedle/Getty Images News

Introduction

Over the past two months, I wrote several articles covering what I would call "retail" or "brick and mortar" businesses, including Starbucks (SBUX), Dollarama Inc. (TSX:DOL:CA)(OTCPK:DLMAF), Costco Wholesale (COST) and Walmart (WMT).

As a (early disclosure) shareholder of

This article was written by

1.36K Followers
Tax consultant and individual investor from Germany, Europe with academic background in Business Administration (B.A.) and Finance & Accounting (M.Sc.).I try to focus on high-quality companies that preferably have high Returns on Capital, high Cash Conversion/Generation, strong Balance Sheets, can outperform the broader market due to competitive advantages and have a long runway for growth.

Analyst’s Disclosure:I/we have a beneficial long position in the shares of HD either through stock ownership, options, or other derivatives. 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.

Disclaimer: Any material in this article should not be relied on as a formal investment recommendation. Never buy a stock without doing your own thorough research.

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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