Nearly seven years removed from the economic downturn of 2007-2009, one of the most devastating financial periods in our country’s history, broader market indices have undergone a steady, widespread recovery, even soaring to new post-crisis highs of late. It has been a passive investors dream for the past several years. There was value to be had around every corner, with companies across the board riding the coattails of the seemingly endless bull market, however, some may argue the gravy train is beginning to lose steam. Indeed, value-oriented investors who were disciplined enough to stick with a buy-and-hold strategy post-recession likely reaped the rewards. Here we explore Dow component Home Depot (HD - Free Home Depot Stock Report), which is a shining example of a stock that has done well following the aforementioned economic downturn. This is especially remarkable considering toxic subprime mortgages and deteriorating housing and credit quality were deemed main contributors to the financial crisis.
In addition, the world’s largest home improvement specialty retailer, now with over 2,250 stores throughout the United States, was able to weather the storm surprisingly well during the specifically difficult timeframe of the recent Great Recession. This can be noted by having a look at the Graph, situated at the top of the Value Line report. True, the business is relatively cyclical in nature, as home improvement projects, construction, and the consumer’s general appetite for spending will be weaker in times of economic contraction. In the meantime, the company underwent several strategic asset sales to keep it running smoothly. By taking a quick glance at the Statistical Array in the middle of the report, which highlights historical earnings performance, one can see that the company’s share net took a slight dip in 2007-2009, but subsequently stabilized and returned to growth shortly thereafter.
The blue chip’s solid and sustained appreciation in value over the past years has limited its capital gains potential further out. Home Depot’s projected price over the next 3 to 5 years (as per our analyst Matthew Spencer), can be viewed in the Projections box located in the upper left-hand corner of the report.
Moving up to the Ranks box directly above, the equity is ranked 3 (Average) for Timeliness. This suggest that the stock’s performance is expected to mirror that of the averages across the universe of The Value Line Investment Survey over the next six to 12 months. To wit, the offering’s market-neutral rank indicates that it does not particularly standout to momentum accounts looking for a short-term play.
That said, the company’s risk profile is fairly impressive. Home Depot holds our Highest Safety rank (1), a staple for risk-averse investors. On top of that, its beta coefficient (.90) indicates that, in general, HD shares are less volatile than the overall market (both found in the Ranks box). Shifting our attention to the Ratings box, located in the bottom right-hand corner, the stock earns a noteworthy score for Price Stability (90 out of 100) and an impeccable mark for Financial Strength (A++). In fact, these two components are the main drivers behind determining the Safety rank. What’s more, the company’s healthy balance sheet (represented in the Capital Structure box) and strong cash reserves (shown in the Current Position box) further solidify our analyst’s viewpoint that HD is a quality conservative selection.
On balance, through combing the Value Line report for specific fundamental metrics, we can conclude that the stock is trading at a fair-to-rich valuation, based on its forward-looking P/E ratio and historical levels. In turn, a pullback in price may be welcomed. Even after factoring in a decent dividend yield (Top Label), there is still much to be desired, in terms of total return potential, over the pull to late decade.