Home Depot (NYSE: HD) is beating the broad market year to date as investors reward the company for showing healthy sales growth and rising profitability. That rally might be just the start, considering the prospects for continued recovery in the housing market. On the other hand, the retailer could soon face disappointing operating trends as it passes $100 billion of annual revenue and must find new avenues for additional gains.
Below, we’ll look at a few good reasons to buy shares in the home-improvement titan, as well as reasons to pass up on this investment.
Why buy Home Depot stock
There’s no shortage of reasons to like Home Depot’s business. It’s growing faster than most other national retailers, for one. Comparable-store sales gains sped up to a blistering 6.3% pace last quarter — from 5.5% in the prior quarter. That acceleration surprised the management team, which responded by raising their full-year revenue outlook. Home Depot is now on track to expand comps by 5.5% in 2017 to ensure another year of market share gains against rival Lowe’s, which is expecting to boost its comps by less than 4%.
Home Depot’s dominance extends to the bottom line, too. Its operating margin is rising toward 15% of sales, a record high. Lowe’s, meanwhile, just reduced its profitability outlook and is stuck closer to a 10% margin.
Home Depot’s financial efficiency is top notch as well. It generates tons of cash from the business, which management directs toward reducing the share count and hiking the dividend. Both capital return channels end up boosting investors’ overall returns.
Why pass on the stock
Home Depot is highly sensitive to shifts in the housing market, and any stall in its recovery would likely put an end to the company’s impressive sales growth…