Here's Why We Think Home Depot (NYSE:HD) Is Well Worth Watching

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Home Depot (NYSE:HD). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Home Depot with the means to add long-term value to shareholders.

View our latest analysis for Home Depot

How Fast Is Home Depot Growing?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. Shareholders will be happy to know that Home Depot's EPS has grown 18% each year, compound, over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Home Depot maintained stable EBIT margins over the last year, all while growing revenue 4.2% to US$157b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Home Depot's future profits.

Are Home Depot Insiders Aligned With All Shareholders?

Owing to the size of Home Depot, we wouldn't expect insiders to hold a significant proportion of the company. But we are reassured by the fact they have invested in the company. We note that their impressive stake in the company is worth US$221m. We note that this amounts to 0.07% of the company, which may be small owing to the sheer size of Home Depot but it's still worth mentioning. This should still be a great incentive for management to maximise shareholder value.

Does Home Depot Deserve A Spot On Your Watchlist?

For growth investors, Home Depot's raw rate of earnings growth is a beacon in the night. With EPS growth rates like that, it's hardly surprising to see company higher-ups place confidence in the company through continuing to hold a significant investment. On the balance of its merits, solid EPS growth and company insiders who are aligned with the shareholders would indicate a business that is worthy of further research. It is worth noting though that we have found 1 warning sign for Home Depot that you need to take into consideration.

The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.