Despite this year’s decline in Home Depot’s stock price (NYSE:HD), the company still has bright future prospects.
This year’s investing environment has been difficult due to the S&P 500’s 24% decline since the year’s beginning. That’s mostly because the Federal Reserve aggressively raised interest rates to battle high inflation.
Home Depot Stock: Immediate difficulties
The once-hot property market is already starting to cool due to higher mortgage rates. The 30-year fixed mortgage rate has grown from 3.2% to 6.7% since the beginning of the year. Additionally, house sales have declined through August for seven consecutive months.
Since many buyers want to make improvements to their houses after they move in, this creates a difficult short-term scenario for the business. Additionally, higher loan rates make it more costly for current homeowners to finance sizable renovations, which will probably harm Home Depot’s stock (NYSE:HD) performance.
Market Analysis of Home Depot Stock
These macroeconomic issues have not yet impacted the top line. Home Depot’s same-store sales (comps) rose by 5.8% during the second fiscal quarter, which concluded on July 31.
Examining the business’s performance from 2007 to 2009, which included the housing bubble burst, is informative. Comps decreased by 8.7% and 6.6%, respectively, in fiscal years 2008 (which concluded on February 1, 2009) and 2009 (which ended on January 31, 2010). The following year, though, they bounced back, rising 2.9%, and the business’s sales were back on pace.
Therefore, even if a slowing housing market may impact Home Depot’s sales, this will probably only be short-lived. This is due to the company’s continued strong competitive position as the world’s most significant home improvement retailer based on sales.
Assessment and dividends
Home Depot stock (NYSE:HD) value is now more appealing due to the price decline. The company trades at a 17 multiple based on the price-to-earnings ratio (P/E). This is a significant decrease from the P/E ratio of 28 at the beginning of 2022. Additionally, the stock’s current value is below the 10-year average of 23. Given the company’s long-term potential, this may prove to be an exciting entry place for patient investors who aren’t trying to time the market bottom.
You may wait patiently to get your dividends in the meantime. The board of directors boosted the quarterly payout earlier this year by almost 15% to $1.90. Since 2010, Home Depot has increased the payment each year.
Additionally, it produces an abundance of free cash flow to fund dividends. Free cash flow was $5.7 billion, while dividends were paid out $3.9 billion in the first half of this year.
While the Federal Reserve’s policies could increase the likelihood of a recession, which would be bad for Home Depot stock (NYSE:HD) performance in the near term, customers would swarm to the shops once the economic climate improves. If this occurs, you may keep receiving dividends while you wait for sales to go up and the stock price to rise. Your perseverance will unquestionably be rewarded with income and capital growth.
Featured Image – Megapixl © Threerivers11
Author Okoro Chinedu 
