1 Reason Lowe's May Be a Smarter Buy Than Home Depot Before Aug. 19
Key Points
Home Depot’s shares have slightly outperformed Lowe’s stock in the past three years, although both have disappointed relative to the market.
When Lowe’s reports Q2 financial results, it will be encouraging to see same-store sales increase again.
Investors can buy Lowe's shares at a 26% discount to its bigger rival, even though the former has grown profits at a much faster clip from fiscal 2020 to fiscal 2025.
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The home improvement industry has been under pressure in recent years. Macroeconomic headwinds, most notably elevated interest rates and above-normal inflation, have hurt demand for the two largest players, Home Depot (NYSE: HD) and Lowe's (NYSE: LOW).
And these two retail stocks have underperformed the market. Home Depot shares are up 8% in the past three years (as of Aug. 7), while Lowe's shares have fallen 1%. Investors deciding between these two should focus on one key data point.
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Here's one reason Lowe's may be a smarter buy than Home Depot before Aug. 19.
Image source: Getty Images.
A fresh financial update is on deck
Lowe's is set to report financial results for its fiscal 2026 second quarter on Aug. 19. Besides the obvious revenue and profit figures, investors should pay attention to some important information.
Same-store sales increased 0.6% in Q1. It will be extremely encouraging to see this figure grow in the latest fiscal quarter, as it measures the performance of locations open at least 13 months.
Trends for both do-it-yourself and professional customer cohorts will be insightful. The leadership team continues to expect pro demand to outpace DIY.
Lowe's acquired Foundation Building Materials last October and Artisan Design Group in June 2025. Any commentary that management provides on cost synergies and integration progress will be valuable. This will indicate if these significant billion-dollar capital allocation decisions are bearing fruit.
Valuation matters
Of course, investors shouldn't buy Lowe's stock to front-run the financial release on Aug. 19. This sort of urgency promotes short-term thinking. In the grand scheme of things, a single quarter's numbers have minimal influence on overall valuation.
The best mentality is one that supports long-term ownership of businesses. This is the right philosophy to have. It allows compounding to work.
That being said, Lowe's is a better stock to buy right now over Home Depot for one simple reason: it's cheaper. The former trades at a forward price-to-earnings ratio of 16.5, while the latter can be bought at a 22.3 multiple. This means that the market is offering Lowe's at a 26% discount to its larger rival. That's a notable disparity when their business models are almost identical.
From fiscal 2020 to fiscal 2025, diluted earnings per share (EPS) at Lowe's grew at a much faster rate than it did at Home Depot. And looking at the next three fiscal years, the consensus view among sell-side analysts is that Lowe's will register a 6.5% annualized gain, slightly better than the expectation for Home Depot.
The market should eventually reward Lowe's with a valuation ratio that closes the gap with Home Depot.
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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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