Home Depot stock retraces from it's all-time high of $439 recorded on November 25th, 2024. Closing at $410.71 on December 16th, the stock is down 1.5% on the day. Despite this drop, Home Depot has posted impressive YTD returns of 21.42%, though it trails the S&P 500's 27.34% gain during the same period. Over the past five years, Home Depot has delivered 116.41% return, surpassing the S&P 500’s 91.68%.
It is also privileged to have a forward dividend yield of 2.19%; in addition to regularly rising dividend payouts. However, the trailing P/E of 27.86 with a forward P/E of 25.97 has some investors wondering if it is actually the right time to jump in, or if the stock will pull back even further.
Home Depot continues to be a great force in the home improvement retail business since it is backed by a strong network of warehouses, competitive strengths, and brand image. Some of its revenue streams are growing at a slow pace due to a high interest rate environment but analysts are sanguine about its future especially given the Fed’s indication that it may cut rates.
Home Depot’s activity could also be benefited by potentially rising construction and home improvement at lower interest rates. In addition, the company acquired SRS Distribution which further strengthened its position, allowing better economies of scale and improved product distribution.
The payout from a dividend point of view may not be very large at 2.2% but the compounding track record for Home Depot has been impressive, up by 50% in last five years and 281% for the last ten years. Home Depot on average presents acceptable profit margin of 9.45% while the return on equity (ROE) is exceptionally high at 404.93%.
While the long-term outlook appears promising, several short-term challenges could weigh on Home Depot’s stock performance. The current valuation, with a forward P/E of 25.97, is higher than its historical average, making it potentially expensive in a still-uncertain macroeconomic environment.
Despite the Federal Reserve’s rate cuts, mortgage rates remain elevated, dampening housing market activity and consumer spending on home improvement projects. House prices are still high, and affordability remains a challenge for first-time buyers. Significant rate cuts may be necessary to stimulate the housing market meaningfully, and it’s unclear if or when such measures will occur.
Technically, Home Depot stock is now in a bearish trend as price pulls back from $439, the all-time high. Today its price is $410.71, which is a close, close to the first significant support level at $390. There can be a rebound at this level and push the stock price to its new high, if price shows some bullish signs from the level.
However if it goes below $390, then it may go down to $330, this being a much stronger support level which coincides with the historical rejections at the level.
These levels might be thought of as possible points to establish long-term investments by investors if there arises a buy confirmation. This is in view of the fact that the RSI has just shown that the stock is cooling off from overbought territory, therefore the next few trading sessions will be very crucial in the trend of the stock in the short run.
Long term investment case at Home Depot is quite attractive with HD continuing to exert its dominance within the industry, maintain a rock solid dividend policy and stand to benefit from the housing market recovery when it comes again. However, due to its current price to book value, coupled with near term fundamental and economic risks investors are waiting for a better entry point perhaps from the current support levels of $390 or $330.
For those with a long-term outlook and tolerance for short-term volatility, Home Depot’s consistent execution and solid fundamentals make it a worthwhile addition to a diversified portfolio. As the housing market stabilizes and interest rates normalize, the stock could outperform over the next five years.