Stock Analysis
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- NYSE:HD
Investors in Home Depot (NYSE:HD) have made a respectable return of 79% over the past five years
The Home Depot, Inc. (NYSE:HD) shareholders might be concerned after seeing the share price drop 11% in the last quarter. But at least the stock is up over the last five years. Unfortunately its return of 59% is below the market return of 61%.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
View our latest analysis for Home Depot
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During five years of share price growth, Home Depot achieved compound earnings per share (EPS) growth of 18% per year. The EPS growth is more impressive than the yearly share price gain of 10% over the same period. So one could conclude that the broader market has become more cautious towards the stock.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Dive deeper into the earnings by checking this interactive graph of Home Depot's earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Home Depot the TSR over the last 5 years was 79%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While it's certainly disappointing to see that Home Depot shares lost 6.5% throughout the year, that wasn't as bad as the market loss of 13%. Longer term investors wouldn't be so upset, since they would have made 12%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - Home Depot has 1 warning sign we think you should be aware of.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
What are the risks and opportunities for Home Depot?
Rewards
Earnings are forecast to grow 3.99% per year
Earnings grew by 1.4% over the past year
Risks
Has a high level of debt
Further research on
Home Depot
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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.
About NYSE:HD
Established dividend payer with acceptable track record.
