It’s operating in a tough environment.
Home improvement chain Home Depot (HD -0.67%) stock fell 12% in April according to data provided by S&P Global Market Intelligence. It’s been struggling through inflation and a suppressed housing market, and it’s expecting pressure in 2024.
This is not Home Depot’s moment
Home Depot is the largest home improvement chain in the world, with more than 2,300 stores in the U.S., Canada, and Mexico. It typically enjoys the growth that comes with being the established leader in an industry, but it also invests heavily in maintaining that spot and generating higher sales and profits.
Although it’s usually reliable for slow and steady growth, it’s been struggling to keep that up over the past few quarters. There are several related reasons for this. Shoppers are putting off large and expensive purchases right now when money’s tight and every penny counts, and as the real estate market remains down due to high mortgage rates, there’s less demand for housing-related purchases. As inflation remains stubbornly high, the Federal Reserve hasn’t been able to lower interest rates as anticipated, and that doesn’t look good for Home Depot’s near-term outlook.
Fiscal 2023 (ended Jan. 28) full-year sales fell 3% year over year, and earnings per share (EPS) dropped 9.5%. Management is guiding for sales and comparable sales to stay more or less flat in 2024.
However, it’s working to reduce costs for now and investing in its business to be ready for a rebound. It cut out some expenses that it had added when demand exploded early in the pandemic, aiming to reduce fixed costs by $500 million by the end of this year. It also recently made two strategic acquisitions. In December, it acquired Construction Resources, a specialty surfaces manufacturer, to target its pro segment. In March, it announced that it’s acquiring SRS Distribution, a home remodeling supplier.
These are bold and strong actions that expand its target market and will benefit Home Depot as the tide begins to turn in its favor.
Is this an opportunity to buy Home Depot stock on the dip?
Home Depot has been a market-beating stock for decades. It also pays a juicy dividend that yields 2.6% at the current price.
It may be under pressure right now, but it’s taking the right actions to build up its business despite a harsh climate. At a forward 1-year price-to-earnings ratio of 20, now looks like an excellent time to stock up on shares.
Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool has a disclosure policy.
