Where Will Home Depot Be in 5 Years?

Key Points

• Home Depot’s sales could get a boost if interest rates start to decline.

• Consistent profits have given management the confidence to keep paying dividends.

• Investors must consider the stock’s current valuation, which looks expensive.

• 10 stocks we like better than Home Depot ›

With trailing 12-month revenue of $165 billion, Home Depot (NYSE: HD) is a gigantic business that most investors are probably familiar with. It has a leading position in the home improvement industry. And with over 2,000 stores scattered across the U.S., Home Depot is well within reach of a large portion of the country's population.

Shares have generated a respectable 67% total return in the past five years (as of Sept. 4). But that gain comes up well short of the S&P 500, which would have more than doubled investor capital.

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Where will this top retail stock be in five years?

Image source: Getty Images.

Waiting for the backdrop to improve

Home Depot was a surprise beneficiary during the COVID-19 pandemic. Sales surged 19.9% in fiscal 2020 and 14.4% in fiscal 2021. Then, when inflation started rising and interest rates rose rapidly, the business took a hit. These headwinds are still present today.

Revenue in fiscal 2024 (ended Feb. 2, 2025) was just 5.5% higher than three years prior. And for fiscal 2025, management expects same-store sales to grow by only 1%. This doesn't drive excitement from investors.

"By a wide margin, economic uncertainty is number one," CEO Ted Decker pointed out on the Q2 2025 earnings call when discussing what the main reason was for his customer base to delay spending on renovation projects. Other retailers are feeling something similar, with consumers worried about the state of the economy.

Big projects can require debt financing. With elevated interest rates, it makes sense that households are being more cautious. But the Federal Reserve is expected to make a rate cut this month. Lower borrowing costs could provide just the boost Home Depot needs.

Despite what happens with interest rates, the company is in a favorable position. The home improvement industry is massive, estimated to be worth $1 trillion. And it's fragmented, which gives Home Depot the upper hand versus rivals thanks to its brand recognition, unmatched product availability, and omnichannel capabilities.

Home Depot plans to add 13 new stores to its footprint in fiscal 2025. Expanding the physical presence isn't a key part of the growth playbook anymore. However, five years from now, investors should have confidence that Home Depot's revenue will be noticeably higher. The gains might not mimic historical trends, but this company still has room to grow.

Focusing on shareholders

In the past five years, Home Depot has put up an average operating margin of 14.3%. In other words, this is a consistently profitable business. And the leadership team has taken earnings and given them straight to shareholders. This trend won't likely change between now and 2030.

In the last two fiscal quarters, Home Depot paid a combined $4.6 billion in dividends. The quarterly payout has risen by 53% in the past five years. And the company boasts having paid a dividend in a jaw-dropping 154 straight quarters. That's a remarkable track record that highlights management's focus on its investors.

Can Home Depot beat the market?

This is a high-quality business that commands a leading position in the industry, with minimal threat of disruption. But if investors were to buy the stock today, it's difficult to believe they could produce a market-beating return over the next five years. Home Depot's earnings would need to increase significantly for that to happen. I believe net income will be higher in 2030, just not enough to drive big stock gains.

The valuation also isn't attractive right now. Shares trade at a price-to-earnings ratio of 28. This is much more expensive than the trailing-five-year average. And the multiple has expanded by 56% in the last three years. It's best to wait for a sizable pullback before buying the stock.

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Neil Patel 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.