Wall Street Analysts are Bullish on This Blue Chip Stock: Here's Why They're Wrong

Home Depot (NYSE: HD) stock has struggled in 2026, trading down about 10% year to date.

The downward trajectory of this blue chip stock, which is in the Dow Jones Industrial Average, reflects the uncertainty investors feel about rising prices and high interest rates. These macroeconomic concerns are keeping more consumers from moving and taking on home improvement projects.

But there was some hope this week, as Home Depot released first-quarter earnings on May 19 that were better than expected. Revenue increased about 5% year over year to $41.8 billion, beating the $41.5 billion analysts had targeted. Comparable store sales rose 0.6%.

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Net earnings were $3.3 billion, or $3.30 per share, down from $3.4 billion a year ago this quarter. Adjusted earnings, which analysts track, were down 4% to $3.43 per share, but it was better than analysts anticipated.

"The underlying demand in our business was relatively similar to what we saw throughout fiscal 2025, despite greater consumer uncertainty and housing affordability pressure," said Home Depot's chair, president, and CEO, Ted Decker.

Also, Home Depot reaffirmed its guidance, calling for 2.5% to 4.5% sales growth and 0% to 2% comparable store growth. Also, the operating margin is targeted at 12.4% to 12.6%, up from 11.9% in Q1. In addition, it maintained its call for 0% to 4% earnings-per-share growth in 2026.

A slew of Wall Street analysts lowered their price targets for Home Depot, but most still see it as a buy with significant upside. It has a median price target of around $380 per share, with some 60% of analysts rating the stock as a buy. The median price target would suggest roughly 23% upside over the next 12 months.

That seems a bit optimistic.

Home Depot stock is overvalued

Beating estimates and reaffirming guidance are good signs on their face, but when growth is slow or negative, and the outlook is similar, itʻs not that big a deal. And it's especially not a big deal when the stock is already overvalued.

Home Depot's valuation has dropped from the beginning of the year, but its forward P/E ratio is still 20, which is a bit high for the growth rates Home Depot is expecting. Even in the long term, the five-year PEG ratio is high at 2.77, suggesting it's overvalued relative to long-term earnings projections. Its other valuation measures, such as enterprise value-to-EBITDA, also suggest the stock is overvalued.

Making the outlook even cloudier is the stagnant state of the real estate market. Home Depot thrives when houses are selling, and people are improving their homes. There was an expectation before the war that interest rates would come down sharply, but now it seems less likely. And now inflation keeps ticking higher.

In its May 2026 Housing Outlook, Fannie Mae is calling for the 30-year fixed rate to be 6.3% in 2026 and 6.2% in 2027, so thatʻs very little movement. This, along with inflation and stagnant home sale trends, could make it hard for Home Depot to even meet its conservative guidance goals. I just donʻt see Home Depot getting the bounce analysts expect.

Dave Kovaleski 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.