|Instrument:HOME DEPOT INC|
Home Depot is the world’s largest home-improvement retailer. The company operates over 2290 big-box stores in all the 50 US states as well as throughout Canada and Mexico. All its stores are interconnected with its eCommerce platform. They provide over 1 million products to professional contracts, DIY (do-it-yourself) customers, and do-it-for-me customers. Founded in 1978 by Bernie Marcus and Arthur Blank as just a competitive ‘hardware store’, The Home Depot, Inc. has grown to be the dominant leader of the home improvement industry. Its stores becoming the place of choice for individuals and contractors who seek to remodel, update, or tackle any projects on arguably their most precious material assets – their homes.
From the very beginning, Home Depot had a clear business model of marking down its merchandise to drive sales and continuously decreasing the cost of making those sales. At the time, businesses that followed that model were characterised by lowly paid unskilled employees and overall poor services. This is what Home Depot sought to correct. The company accurately assessed that most DIY customers did not have the technical expertise to effectively perform most home improvement tasks. They, therefore, sought to train their staff, which then shared this knowledge with customers in order to build their confidence. As customer confidence grew, their frequency of visits to Home Depot also increased. The company has maintained an almost flawless growth trajectory throughout its history. It became the largest home-repair retailer in 1989, and it looks like it will continue maintaining the top spot as of August 2021.
Home Depot went public on September 22nd, 1981, listing on the NYSE, where it trades under the ticker symbol HD. The stock is categorised in the Consumer Cyclical sector, under the Home Improvement Retail industry.
Home Depot Stock History
Home Depot had an IPO price of $12, but the company has implemented 13 stock splits in its history (all before 2000). This has ensured that HD stock had a split-adjusted IPO price of $0.03.
The HD stock drifted upwards slowly in its first couple of years but gathered steam towards the late 1990s when it climbed above $60 before the turn of the millennium. The stock then fell to maintain the pace and subsequently tumbled to lows of circa $20 by March 2003. It then struggled to reclaim the $50-handle in the following years, tumbling again to circa $20 in late 2008 as the company felt the impact of the Great Recession.
Since then, however, the HD stock price has been unstoppable. The stock began a multi-year rally that saw it breeze past $100 in late 2014, and it broke above $200 in January 2018. After a period of consolidation throughout 2018, the stock started climbing higher in 2019, but the COVID-19-inspired slowdown of 2020 triggered a correction to circa $150 by March 2020. However, demand for Home Depot products then drastically increased as populations who were kept indoors sought to improve their homes. The stock then soared, breaking above $300 and printing its all-time high (at the time of writing) above $340 in May 2021. The stock continues to settle above $300 as of August 2021.
Home Depot is a consistent dividend payer averaging a dividend yield of 2.5% in recent years.
How to Trade Home Depot Stock
Here are some of the factors to consider when trading HD stock:
- Macroeconomic Factors
Home Depot is susceptible to prevailing macroeconomic conditions. Home improvement projects are generally done during periods of economic boom and loose monetary policy, such as low-interest rates. High-interest rates usually limit mortgage applications, and consequently, stall home improvement projects.
- Weather Conditions
Macroeconomic factors are not the only reason that ensures the HD stock performance is cyclical. Weather conditions also have a massive influence, with numerous home improvement projects typically postponed during bad weather. This is why HD Q1 performance is normally poor compared to other quarters.
Home Depot operates a highly lucrative but also an imitable business model. The company thus faces tough competition in its home improvement space from companies such as Lowe’s, Menards, Home Improvement, and True Value. Additionally, competition also comes from other general retailers such as Walmart, Amazon, and Target. This means that Home Depot continually faces an uphill task to hold onto its market share, let alone increase it.
- Periodic Earnings Reports
The Home Depot fiscal year runs from January to December, and the company releases periodic earnings reports to update investors on its business health. In addition to sales, revenues and profits, HD investors watch out for the debt levels of the company. The company is known to hold high long-term debt, and investors are always keen to ascertain that the company has the capacity to sustain future payments. Strong numbers are typically good for the stock, whereas weak numbers can pressure HD prices lower.
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