Rising mortgage rates and a cooling housing market may, predictably, negatively influence Home Depot stock (NYSE:HD).
In this kind of macroeconomic situation, customers are less likely to embark on expensive refurbishment projects that they can postpone until better times arrive. A scenario like this will also cause investors to lose faith in the company’s shares.
Market Analysis of Home Depot Stock
Despite mortgage rates rising to levels not seen in 15 years and house values in the United States dropping in recent months, Home Depot’s business remains resilient. Revenue of $43.8 billion (up 6.5% year on year) and diluted profits per share of $5.05 (up 11.5%) both topped Wall Street projections in the fiscal 2022 second quarter (ending July 31).
With individuals spending more time at home during the epidemic, performing refurbishment projects became a new priority. In addition, Home Depot’s revenues increased by 19.9% in fiscal 2020 and 14.4% in fiscal 2021. Following this double-digit increase, it was expected that, when the economy slowed, Home Depot’s company would suffer as well.
However, management said there had been no significant slowdown in demand, with DIY and Pro customers continuing to expand and order backlogs maintaining solid.
“Despite near-term challenges, we think that the long-term fundamentals of demand for home improvement remain robust and that we are well-positioned to capitalize on significant growth possibilities in our industry,” CEO Ted Decker said during the company’s second-quarter earnings call.
It is undeniably a challenging operating climate, with inflation pressuring profits at many businesses and shrinking consumer budgets. Given the current economic climate, it’s even more surprising that Home Depot reported an operating margin of 16.5% in the most recent quarter, up from 16.1% the previous year. Lowe’s performs worse in this profitability parameter, with an operating margin of 15.4% in the most recent quarter.
Current market value
With Home Depot stock (NYSE:HD) down 34% in 2022, it’s evident that the company is underperforming due to weakness in both the stock and housing markets in the United States. Consequently, shares are selling at a price-to-earnings (P/E) ratio of 17, which is lower than the S&P 500’s P/E ratio of 18. Furthermore, that ratio is much lower than Home Depot’s trailing-10-year P/E multiple of 23, making it a very appealing entry point for investors to grab Home Depot stock (NYSE:HD).
Buying Home Depot stock (NYSE:HD) presently seems to be a no-brainer move for those who embrace a long-term perspective when it comes to investing and can look out for five to ten years. This is a wonderful company that has consistently generated sales, profit growth, and tremendous stock gains. Whatever challenges it is now experiencing, I am certain that management will be able to overcome them.
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Author Okoro Chinedu 
