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Category: The Home Depot (HD) and Lowe's (LOW)
Date: 22 August 2020 Stock price of The Home Depot: $396.67 Stock price of Lowe's: $95.17 Battle of the DIY store stocks. We take a look at The Home Depot (HD) and Lowe's (LOW) stock over the last couple of years as well as investigate which one of these two DIY groups is best placed to provide investors with superior returns based on their current stock price and fundamentals.
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So if one had to buy one of these two DIY retail stocks now which one is the best buy? Is there a reason why the stock of Lowe's has underperformed against The Home Depot? Or does the underperformance of Lowe's provide a good opportunity to buy into their stock instead of that of The Home Depot? Or is there a reason why The Home Depot is outperforming that of Lowe's?"
More About The Home Depot (HD)
When The Home Depot was founded in 1978, Bernie Marcus and Arthur Blank had no idea how revolutionary this new “hardware store” would be for home improvement and the retail industry.Today, we’re proud to be the world’s largest home improvement retailer. In more than 2,200 stores across North America, we aspire to excel in service – to our customers, associates, communities and shareholders. That’s what leadership means to us. That's The Home Depot difference. Our founders’ vision of one-stop shopping for the do-it-yourselfer came to fruition when they opened the first two Home Depot stores on June 22, 1979, in Atlanta, Georgia. The first stores, at around 60,000 square feet each, were cavernous warehouses that dwarfed the competition and stocked 25,000 products, much more than the average hardware store at that time.
Today, The Home Depot is the world’s largest home improvement retailer with nearly 400,000 orange-blooded associates and more than 2,200 stores in the U.S., Canada and Mexico. The typical store today averages 105,000 square feet of indoor retail space, interconnected with an e-commerce business that offers more than one million products for the DIY customer, professional contractors, and the industry’s largest installation business for the Do-It-For-Me customer.
Overview of The Home Depot's latest earnings report
The Home Depot store sales data:
Our latest stock valuation of The Home Depot: $203.7
Today, The Home Depot is the world’s largest home improvement retailer with nearly 400,000 orange-blooded associates and more than 2,200 stores in the U.S., Canada and Mexico. The typical store today averages 105,000 square feet of indoor retail space, interconnected with an e-commerce business that offers more than one million products for the DIY customer, professional contractors, and the industry’s largest installation business for the Do-It-For-Me customer.
Overview of The Home Depot's latest earnings report
- Net sales: $38.054 billion (up from $30.839 billion for the same quarter of the previous year)
- Net sales increased by 23.4% over the last 12 months
- Cost of sales: $25.112 billion (up from $20.407 billion for the same quarter of the previous year)
- Cost of sales increased by 23.1% over the last 12 months
- Some margin gain for The Home Depot as their revenues increased at a faster rate than their cost of sales
- Net earnings: $4.332 billion (up 24.5% from $3.479 billion for the same quarter of the previous year)
- Diluted earnings per share: $4.02 (up 26.8% from $3.17 for the same quarter of the previous year)
- PE ratio of The Home Depot: 23.3%
- Dividend declared: $1.50
- Dividend yield of The Home Depot: 2.1%
- Diluted shares in issue: 1.077 billion (down -2.1% from 1.099 billion for the same quarter of the previous year)
- Cash and cash equivalents: $14.139 billion
- Cash and equivalents per share: $13.12
- Cash and equivalents makes up 4.6% of The Home Depot's market capital
- Cash and equivalents makes up 22.3% of The Home Depot's total assets
- Cash and equivalents per share: $13.12
- Merchandise inventories: $13.498 billion
- Inventories makes up 21.3% of Home Depot's total assets
- Receivables: $2.562 billion
- Receivables makes up 4% of The Home Depot's total assets
- Cash generated from operations; $14.829billion
- Cash generated from operations per share; $13.76
The Home Depot store sales data:
- Customer transactions (in millions): 511.5 (up 12.3% from the 455.5 million transactions for the same quarter of the previous year)
- Average ticket $74.12 (up 10% from $67.31 for the same quarter of the previous year)
- Sales per square foot: $629.38 (up 23.5% from $509.55 for the same quarter of the previous year)
Our latest stock valuation of The Home Depot: $203.7
More About Lowe's (LOW)
Lowe’s Companies, Inc. (NYSE: LOW) is a FORTUNE® 50 home improvement company serving more than 18 million customers a week in the United States and Canada. With fiscal year 2018 sales of $71.3 billion, Lowe’s and its related businesses operate or service more than 2,200 home improvement and hardware stores and employ approximately 300,000 associates. Founded in 1946 and based in Mooresville, N.C., Lowe’s supports the communities it serves through programs focused on creating safe, affordable housing and helping to develop the next generation of skilled trade experts.
Overview of Lowe's (LOW) latest earnings report
Our latest Lowe's (LOW) stock valuation: $149.60
Overview of Lowe's (LOW) latest earnings report
- Net sales $27.302 billion (up from $20.922 billion for the same quarter of the previous year)
- Net sales increased by 30.5% over the last 12 months
- Cost of sales: $17.998 billion (up from $14.252 billion for the same quarter of the previous year)
- Cost of sales increased by 26.3% over the last 12 months
- Net earnings: $2.828 billion (up from $1.676 billion for the same quarter of the previous year)
- Diluted earnings per share: $3.74 (up from $2.14 for the same quarter of the previous year)
- PE ratio of Lowe's (LOW): 14.1
- Cash dividends per share: $ 0.55 (up from $ 0.48 for the same quarter of the previous year)
- Dividend yield: 1.4%
- Diluted number of shares in issue: 753 million (down from 781 million for the same quarter of the previous year)
- Cash and cash equivalents: $11.641 billion
- Cash and cash equivalents per share: $15.46
- Cash and cash equivalents makes up 9.8% of Lowe's market capital
- Cash and cash equivalents makes up 22.4% of Lowe's total assets
- Cash and cash equivalents per share: $15.46
- Merchandise inventory - net: $13.831 billion
- Merchandise inventories increased by 0.74% over the last 12 months
- Merchandise inventories makes up 26.7% of Lowe's total assets
- Total stockholders equity: $4.356 billion
- Stockholders equity per share: $5.78
- Lowe's is trading at 27.3 times its stockholders equity per share, which is well outside the expected range of between 2 and 4 times that most firms tend to trade at
- Cash generated from operations (for the 2 quarters of their fiscal 2020): $11.752 billion
- Cash generated from operations per share (for the 2 quarters of their fiscal 2020): $15.60
Our latest Lowe's (LOW) stock valuation: $149.60
The Home Depot (HD) vs Lowe's (LOW) stock performance over the last 5 years
The image below shows the stock price performance of The Home Depot (HD) and Lowes (LOW) over the last 5 years. Both are DIY retailers largely based in the USA and the stock price trends of the two firms in question are very similar. Below the stock price returns provided by the two stocks over the last 5 years.
The stock of The Home Depot has easily outperformed the stock of Lowe's over the last 5 years.
- The Home Depot (HD): 140.2%
- Lowes (LOW): 129.5%
The stock of The Home Depot has easily outperformed the stock of Lowe's over the last 5 years.
So if one had to buy one of these two DIY retail stocks now which one is the best buy? Is there a reason why the stock of Lowe's has underperformed against The Home Depot? Or does the underperformance of Lowe's provide a good opportunity to buy into their stock instead of that of The Home Depot? Or is there a reason why The Home Depot is outperforming that of Lowe's?
So let's take a look at the fundamentals and the valuation metrics in order to determine which of these two firms offers the most value at their current stock price.
One of our key metrics is the Price to Stockholders equity per share ratio. When looking at this we find the following:
Most firms tend to trade at a ratio of between 2 and 4 times its stockholders equity per share. The higher this ratio the less value a stock offers, and the ratio of 27.3 for Lowe's is very high. However a stockholders deficit shows that a company's assets is less than its liabilities. And this is the case for The Home Depot.
Next up cash as percentage of stock price:
Next up lets take a look at the percentage cash on the balance sheet makes up of each group's total assets:
Next up the PE ratio of the stock price:
Price relative to our valuation:
So The Home Depot has a stockholders deficit, and Lowe's a high price/stockholders equity per share ratio, The Home Depot is trading a higher PE ratio than Lowe's. The cash as percentage of total assets is very similar between The Home Depot and Lowe's. The Home Depot is trading at a higher premium to our stock price valuation than that of Lowe's. Based on current stock prices, The Home Depot is overvalued by almost 40% while Lowe's is overvalued by 8.1%. Based on all the above if we have to buy one of these two DIY retail giants we rate the stock of Lowe's (LOW) as the WINNER.
One of our key metrics is the Price to Stockholders equity per share ratio. When looking at this we find the following:
- Price/Stockholders equity per share for The Home Depot (HD) : Stockholders deficit so this ratio cannot be calculated
- Price/Stockholders equity per share for Lowe's (LOW): 27.3
Most firms tend to trade at a ratio of between 2 and 4 times its stockholders equity per share. The higher this ratio the less value a stock offers, and the ratio of 27.3 for Lowe's is very high. However a stockholders deficit shows that a company's assets is less than its liabilities. And this is the case for The Home Depot.
Next up cash as percentage of stock price:
- Cash as percentage of stock price for The Home Depot (HD): 4.6%
- Cash as percentage of stock price for Lowe's (LOW): 9.8%
Next up lets take a look at the percentage cash on the balance sheet makes up of each group's total assets:
- Cash as percentage of stock price for The Home Depot (HD): 22.3%
- Cash as percentage of stock price for Lowe's (LOW): 22.4%
Next up the PE ratio of the stock price:
- PE ratio of The Home Depot (HD): 23.3
- PE ratio for Lowe's (LOW) : 14.1
Price relative to our valuation:
- The Home Depot (HD): 38.9% overvalued based on our latest stock valuation
- Lowe's (LOW): 8.1% overvalued based on our latest stock valuation
So The Home Depot has a stockholders deficit, and Lowe's a high price/stockholders equity per share ratio, The Home Depot is trading a higher PE ratio than Lowe's. The cash as percentage of total assets is very similar between The Home Depot and Lowe's. The Home Depot is trading at a higher premium to our stock price valuation than that of Lowe's. Based on current stock prices, The Home Depot is overvalued by almost 40% while Lowe's is overvalued by 8.1%. Based on all the above if we have to buy one of these two DIY retail giants we rate the stock of Lowe's (LOW) as the WINNER.