3 Things to Know About Home Depot Stock Before You Buy
Key Points
As a business that depends on robust household balance sheets and consumer confidence, Home Depot faces cyclical demand.
The company’s strong position with professional customers is a notable advantage.
Home Depot is a consistently profitable business, allowing management to focus on shareholder capital returns.
- 10 stocks we like better than Home Depot ›
Roughly 90% of the U.S. population lives within 10 miles of a Home Depot (NYSE: HD) location. A physical footprint like this with such a broad reach showcases the company's market leadership.
But investors haven't reaped the rewards. Home Depot shares have produced a disappointing total return of 12% in the past five years (as of June 1). On the other hand, the S&P 500 (SNPINDEX: ^GSPC) generated a much better total return of 94%.
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With the retail stock trading 28% off its peak right now, investors might be interested in this opportunity. Take the time to learn these three things about Home Depot first, as this will inform your decision-making process.
Image source: The Motley Fool.
1. Demand has proven to be cyclical
Unlike businesses that sell small-dollar items or that generate recurring subscription revenue, Home Depot has shown that its demand can be cyclical. During the pandemic, when households were flush with excess cash, revenue jumped 19.9% and 14.4% in fiscal 2020 and fiscal 2021, respectively. This is not a normal occurrence.
As the macro environment has evolved, now characterized by higher interest rates and stubborn inflationary pressures, Home Depot's growth has slowed notably. Revenue increased at an annualized pace of just 2.2% between fiscal 2021 and fiscal 2025. And in the first quarter of fiscal 2026 (ended May 1), same-store sales were up 0.6%.
The economic backdrop doesn't exactly give consumers the confidence they need to spend on expensive renovation projects and upgrades. During the Q1 2026 earnings call, CEO Ted Decker specifically called out low housing turnover and new construction starts trending down, which negatively impact the company.
On a positive note, however, Home Depot estimates its total addressable market to be $1.2 trillion. Based on its trailing-12-month revenue of $167 billion, there is plenty of room to steadily capture more market share over time.
2. Professionals are a key customer group
Home Depot sells to DIY customers. It also targets professionals. This group includes contractors, plumbers, electricians, and roofers, for example, who tackle a high number of complex jobs. Sales to professionals grew at a faster pace than those to DIY customers during the latest fiscal quarter.
The company generates about half of its revenue from professionals. This translates to a significantly higher dollar figure than what smaller rival Lowe's gets from its 35% share of pro sales. Consequently, Home Depot has a massive lead in this segment.
Despite accounting for half of sales, professionals only make up 10% of Home Depot's customer base. These are extremely high-value shoppers that the business wants to continue catering to.
Home Depot offers them valuable products and services, such as complex order scheduling. "Pros can provide us with job site preferences and business hours, enabling us to complete their delivery on time, inside the exact window the pro is looking for," senior EVP Ann-Marie Campbell said on the Q1 2026 earnings call.
3. Management is focused on capital returns
Even though this is a cyclical operation, Home Depot continues to post consistent profits. In fiscal 2025, it brought in $14.2 billion in net income and $16.3 billion in operating cash flow. And remember, this is during an unfavorable macroeconomic environment.
Steady earnings support management's capital allocation policy, which prioritizes returning cash to shareholders. Home Depot engages in opportunistic share buybacks. In the past five years, the business reduced its diluted outstanding share count by 7.3%.
Dividends should command more attention, though. After the next payout on June 18, Home Depot will have paid a dividend in 157 straight quarters, an encouraging streak highlighting its financial strength. And in the past decade, the payout climbed 238%.
The S&P 500 pays a dividend yield of 1.03%. Home Depot's 3% dividend yield is almost 200% higher than that. This might encourage income investors to take a closer look at the retail 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 recommends Lowe's Companies. The Motley Fool has a disclosure policy.
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