Home Depot, Inc. (HD - Get Rating) in Atlanta, Ga., is the world’s largest home improvement retailer. As of Jan.30, 2022, HD operated 2,317 stores across the United States, Canada, Mexico, Columbia, Puerto Rico, and Guam. With a $330.66 billion market cap, HD is one of the biggest publicly traded companies in the United States and is a constituent of the S&P 500 index and the Dow Jones Industrial Average.

HD has been capitalizing on increased demand for home improvement goods amid the remote lifestyle over the past two years. Thanks to its substantial improvement in earnings and cash flows, the company raised its quarterly dividend by 15% to $1.90 per share earlier this month.

Shares of HD have gained 21% in price over the past year to close Friday’s trading session at $316.60. However, amid the current market slump driven by worsening geopolitical tensions and surging market volatility, HD has declined 13.7% over the past month.

Here’s what could shape HD’s performance in the near term:

Robust Growth History

HD’s revenues have increased an 11.8% CAGR over the past three years, while its EBITDA rose at a 13.1% CAGR over this period. The company net income and EPS have risen at CAGRs of 13.9% and 16.9%, respectively, over the past three years. In addition, HD’s levered free cash flow has increased at a 10.1% rate per annum over the past three years.

Furthermore, HD’s trailing-12-month revenues and net income rose 14.4% and 27.7%, respectively, year-over-year, and its trailing-12-month EPS increased 30.1% from the same period last year, while operating income improved 11.7% from the year-ago value.

Mixed Earnings Growth Prospects

The Street expects HD’s revenues and EPS to decline 2.8% and 4.8%, respectively, year-over-year to $36.44 billion and $3.68, in its fiscal first quarter, ending April 30, 2022. However, the $43.09 billion consensus revenue estimate for its fiscal second quarter (ending July 2022) indicates a 4.8% improvement from the same period last year. Also, analysts expect HD’s EPS to rise 8.8% from the prior-year quarter to $4.93 in the next quarter.

In addition, the company’s revenue is expected to rise marginally year-over-year to $153.52 billion in the current year (ending January 2023) and 4% year-over-year to $159.59 billion next year. Analysts expect HD’s annual EPS to improve 3.1% in the current year and 7.8% next year.

Stretched Valuation

In terms of non-GAAP forward P/E, HD is currently trading at 19.77x, which is 47.3% higher than the 13.42x industry average. In addition, the stock’s 2.69 forward non-GAAP PEG multiple is 200.9% higher than the 0.89 industry average.

HD is currently trading at 2.15 times its forward sales, which is 110.8% higher than the 1.02 industry average. Also, HD’s forward Price/Cash Flow and EV/EBITDA ratios of 16.62 and 14.32, respectively, compare with the 11.02 and 9.44 industry averages.

POWR Ratings Reflect Uncertainty

HD has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

HD has a C grade for Momentum and Sentiment. The stock is currently trading below its 50-day and 200-day moving averages of $372.39 and $349.17, respectively, indicating a downtrend, justifying the Momentum grade. In addition, the company’s mixed earnings and revenue growth prospects are in sync with the Sentiment grade.

Among the 62 stocks in the C-rated Home Improvement & Goods industry, HD is ranked #32.

Beyond what I’ve stated above, view HD ratings for Growth, Stability, Quality, and Value here.

Bottom Line

As working from the office gradually regains traction, HD expects its growth trajectory to slow down in the current year. The company projects its sales growth and comparable sales growth to be slightly positive in fiscal 2022, while its EPS growth is expected to be in the low single digits. In addition, HD expects its annual operating margins to remain approximately flat compared to fiscal 2021.

Furthermore, given the skyrocketing inflation rates that are impacting the company’s cost of operations, we think investors should wait until HD’s earnings growth rate stabilizes before investing in the stock.

How Does Home Depot, Inc. (HD) Stack Up Against its Peers?

While HD has a C rating in our proprietary rating system, one might want to consider looking at its industry peers, Acuity Brands, Inc. (AYI - Get Rating) and Duluth Holdings Inc. (DLTH - Get Rating), which have an A (Strong Buy) rating.

Click here to checkout our Retail Industry Report for 2022

HD shares were trading at $312.86 per share on Monday morning, down $3.79 (-1.20%). Year-to-date, HD has declined -24.61%, versus a -8.27% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

More Resources for the Stocks in this Article