The current housing market may be wreaking havoc on the stock exchange and everyone working in the real estate industry, but home improvement stores such as Home Depot could possibly turn a nice profit from it. The housing bubble is in the process of a remarkably loud pop as it bursts, scattering its financial debris over nearly every type of business. Home Depot stocks have been under increasing pressure during the past year, losing nearly a quarter of their value. This may lead a wary investor to wonder if it’s too risky to invest in Home Depot.
As with any investment, one must figure out whether the risk of buying Home Depot stock will be less or greater than the reward. Since it’s inception in 1984, Home Depot has had an average return of over twenty eight percent; it’s one of a decreasing number of stocks that has rewarded its investors for the high risk they’ve taken. However, most of its growth occurred early as it opened stores in every major city of the country and grew rapidly with the demand for its goods and services.
Although the market doesn’t favor many stocks at the moment, Home Depot is still considered an attractive investment since its current price is much less than it’s expected to make over the lifetime of the corporation. The company’s earnings have proven steady over the past twenty-odd years and a 14% increase is expected over the next five. This is a very important figure to consider when deciding whether to buy a stock. Another is the rating of the stock, where it is on a scale of conservative to aggressive. Home Depot is nearly in the middle, leaning more toward the conservative end which makes it a very good risk when you consider past performance.
Home Depot looks for steady profits over the next few years, even though they are influenced by economic swings. Perhaps that is also a good sign; as the housing market stumbles and fails, homeowners are choosing to stay where they are rather than buy new houses. Companies such as Home Depot are seeing an increase in remodeling materials sales and a higher demand for installation services than ever before. As the demand from commercial builders wanes, consumer purchases are steadily increasing. So, while its initial growth spurt is behind it, Home Depot seems to be a safe and profitable investment for the future.
So, with a current PE of a little over 10, does it make sense to invest now or not?
Disclaimer - InvestorBlogger does not currently own this stock, though he did briefly own it and lost money on it during the dotcom bust years ago! He is currently considering investing in some of the Dow Stocks especially with the current sale… and is waiting for an opportune entry point. Any suggestions? Article was provided by Anuj and his team of writers.
