A Bright Spot in Home Depot’s Earnings

In this episode of Motley Fool Hidden Gems Investing, Motley Fool contributors Tyler Crowe, Matt Frankel, and Lou Whiteman discuss:

• Home Depot’s earnings: The good and the “meh.”
• Home Depot stock: value investment or value trap?
• Are interest rates really the problem for housing?
• Where to invest in the “coiled spring” of home equity
• Mailbag: Reinvest dividends or put the money to work elsewhere?
• Mailbag: Where to invest in green energy?

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A full transcript is below.

This podcast was recorded on May 19, 2026.

Tyler Crowe: Home Depot and housing on today's Motley Fool Hidden Gems Investing. Welcome to Motley Fool Hidden Gems Investing. I’m your host, Tyler Crowe, and today, I’m joined by the usual Tuesday crew. I’ve got Lou Whiteman and Matt Frankel, longtime Fool contributors, here today. We're going to get into Home Depot's earnings, which reported before the bell today, as well as take a look at, I would say, a broader look at the housing industry in general, residential construction, building supply companies in general, because Home Depot is a great time to expand on this broader world that we see in the housing world because there are trillions of dollars associated with a lot of announcing opportunities. Of course, when we finish up, we'll get into the mailbag.

But as I said, we're going to start with Home Depot's earnings. Shares are down about 1.37% as we tape after the company released its first quarter earnings. You know, it beat earnings and revenue estimates were better than expected. Revenue was up 4.8% year over year, but costs outpaced that, and earnings ended up doing a 4.3% decline on a per-share basis, and S&P 500 is down today. You could say, it's just the market, I guess it's not a big deal. But other than that, guys, what did you see, maybe in the earnings or perhaps what you've been watching with Home Depot in general, and what were some of the takeaways? Lou, I want to start with you.

Lou Whiteman: Down slightly now, half hour ago, I think it was 0.1% or so. I think the market is yawning at this quarter, which, if we're honest, that's probably the right reaction, and you don't have to overreact every three months. But look, I will tell you if you squint, if you really, really look carefully, if you really want to see it, there are green shoots there. There is potential signs of life here in a company that, it's been a bad few years for just in terms of total spend. People are shopping less, but they are spending more. Average ticket increased by 2.2%, even as transactions declined about 1.3%, and purchases of $1,000 and more were up slightly. Now, look, it could be glass half empty that's just the impact of inflation versus people actually having an interest in bigger projects. But there's at least a glimmer of hope that we're not just buying petunias for the spring, that we're actually investing in our homes and doing bigger projects, which we haven't seen before.

Tyler Crowe: Lou, I didn't realize you were a big petunia guy.

Lou Whiteman: You know what, the squirrels like the roots, so you have to be careful with them.

Tyler Crowe: Matt, what did you see when you looked at the earnings?

Matt Frankel: I mean, revenue growth was strong, like you mentioned, but it's also important to note that comparable sales weren't great. Most of the growth was new stores and things like that. Comparable sales were up just 0.4% year over year in the U.S., 0.6% worldwide, and that's after a 55 basis point currency tailwind. People are still spending money on what they need for their homes. Lou mentioned purchases of $1,000 or more are up slightly. Some people have to spend that, and we're deferring maintenance, hoping that interest rates were going to come down. Consumer confidence is low, interest rates remain high. The housing market is still extremely slow, and very few homeowners are using their equity to finance projects. This has been going on with Home Depot for the past, I'd say, three years at a minimum. Until we see significant improvements in home affordability, either in the form of prices coming down or rates coming down, I don't really see much changing here.

Tyler Crowe: I want to pull back the lens a little bit, because pretty looking just at the quarter is pretty short term. Over the past five years, though, the shares of the Home Depot are roughly where they were. I think it's maybe like up 78% over the past five years compared to a gain of 78% on a total return basis, so that includes dividends for the S&P 500. That level of underperformance, I don't think I've ever seen that I can at least remember when it comes to Home Depot. Even during, like, the dot-com bust and the Great Recession, Home Depot went down with the rest of the market. This has been one of those times of, like, divergence in the performance of Home Depot as a business and as a stock. I'm not going to question that Home Depot is a quality business or not. This is the duopoly of home improvement, and it's been a wonderful business for going on almost, I think, more than 40 years now, at least as a publicly traded company. There’s obviously the argument, like, it could be the best this is ever going to go, and maybe this is just an underperforming stock for here, or maybe a short-term tailwind or headwind, when it comes to Home Depot’s stock. I want to ask this is Home Depot a value investment, or in the other term, a value trap where it looks cheap, but you're probably getting underperformance because it's cheap for a reason.

Matt Frankel: You correctly mentioned it has really underperformed the market, but a few things to point out. No. 1 Home Depot's trading pretty in line with other what I would call housing adjacent stocks over the past five years or so. If you back out the Mag Seven and certain other aspects of the AI trade, the S&P 500 is not up 78% over the past five years without those parts of the market that have been divergent from everything. Lastly, five years ago, which was May 2021, we were at what I would consider close to the peak of housing euphoria in the U.S. The average 30-year mortgage rate was about 3%, prices were rising rapidly, so there was a lot of incentive to sell and buy and sell and buy and refinance. There was a lot of stimulus being injected into the economy. In short, the fact that Home Depots flat versus exactly five years ago, isn't that terrible, considering the environment for housing and interest rates, and just consumer confidence now compared to then.

At the current price, Home Depot shares are roughly 30% below their high, which was reached in late 2024. You're right, Tyler, we don't see this underperformance from Home Depot often. Before this one, Home Depot has only experienced two 30% drawdowns in the past decade. One was a very quick blip during the initial COVID crash, and the other was during that 2022 bear market when interest rates went from 3%-7% in a year. It’s a rare discount. The stock trades for about 20 times forward earnings. It has about a 3.1% dividend yield. I don't know when, at some point, the real estate market will become more active. I like the stock as a long-term investor here.

Lou Whiteman: Definitely value, not value trap, basically what he said. Look, I'm going to take the over on how long that recovery is going to take, but the good news is, like Matt said, the recovery is not priced in. I don't see any reason to rush in at these levels. I don't think it's like, you must buy now. I'm guessing we'll be buying at these levels for a while now. But you get the decent yield, a good, solid track record of declining share count. It's not on the top of my list to buy, but it's not a bad choice either.

Tyler Crowe: I want to talk Home Depot today, and I thought were like, we could go like one show where we don't mention the word AI once, but Matt had to ring the bell, so we did mention it, unfortunately. I don't know, put the timer on eight minutes in, we're talking AI already. To the point about the dividend yield, too, Home Depot's dividend yield, 3.1% is basically the highest it's been since the Great Recession. Keep that in mind when we're thinking about this as a future investment, those who are actually looking for income. Coming up after the break, we're going to take this discussion about the housing adjacent stuff that Matt was talking about and take, a wider look at what's been going on in the housing market and what investors should be thinking about.

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Tyler Crowe: As we were mentioning up at the top, Home Depot's performance as a stock has been indicative of what we've seen across the residential home, the residential construction market, basically anything that isn't tied to commercial and industrial development these days when it comes to construction, and that's been going on for several years now. Home sales and renovation rates have ground to a halt. But as Matt said in a previous segment, interest rates do have a big play in that. Interest rates today are considerably higher than they were during COVID and right after COVID. But it's at a level that is quite staggering, and there's a great real estate blog by Bill McBride. It's called the Real Calculated Risk real estate. He puts out this amazing chart on housing starts, and it goes back for almost 40 years. Right now, existing home sales in the United States are basically at the same pace they were during the financial crisis during 2008, 2010 period, or as far back as the early 1990s, when basically the United States population was like 90 million fewer people than we have today, and yet home sales are right around that level. When I hear that, and we talk about interest rates as, like, the big culprit here, I almost feel like there has to be more to it. Like, is it just interest rates? Is it consumer sentiment? Like, what is driving this unprecedented low in home sales and renovations and all of these things?

Lou Whiteman: Certainly, interest rates aren't helping, but look, we are too far into this interest rate cycle. They've been where they are long enough now. Everything normalizes, I believe that. I don't think we can blame interest rates anymore, Tyler. I think you're right. I don't blame the home builders, either for the starts number, because as someone who's been poking around for real estate right now, it's amazing the way Home Builders are aggressively discounting the inventory they have. Why should they be starting more when they're doing that? What I think is going on here? I think you have to step outside of housing to really really get the explanation. Housing is just one part of a wider affordability crisis. I mentioned this on the podcast last Friday, but wealth inequality in the U.S. is currently at levels last seen in the 1920s. It's going to take more than shaving 100 or 200 basis points off the mortgage rate to change people's ability to buy houses. That's just it's not an interest rate in a story anymore. We tend to focus on housing with blinders on and see it just with moving rates, economic activity, just seeing the world through housing and levers. I'm in the slower for longer camp because I think if you look outside of housing, outside of these levers, there are factors driving to slow down that I don't think interest rates or anything the home builders can do. I don't think there's anything they can do to solve this.

Matt Frankel: It's a few different factors. Some of it was pulled forward demand during COVID, like you said, I know a lot of people who bought homes during COVID, myself included. Some is the fact that consumer sentiment is extremely low right now. I'm not sure if it's quite at an all-time low anymore, but it's pretty close. Interest rates being stubbornly high are certainly not helping, but there are some reasons to be positive going forward. For example, wage growth in the U.S. is currently outpacing inflation, and it's significantly outpacing home price increases. Home prices rose on average about 1.3% in 2025. Affordability could improve even without meaningful changes in interest rates or home prices. I believe that at some point, inflation will be brought under control and gravitate toward the Fed's 2% target, and interest rates will come down, not to the 3% mortgage rates we saw in 2021, but the 5% area is certainly realistic. Doing the math, a 30-year mortgage rate, moving from 6.5%, we're roughly where it is now to 5% is effectively a 15% discount on the principal and interest portion of a mortgage. It would get many people who are currently stuck in place off the sidelines.

Tyler Crowe: I can see that certainly with the wealth equality thing, it's certainly when I think about that, it's like the first-time home buyers, I think is a market that has been strained incredibly hard recently, and I don't see that changing a whole lot either. But to Matt's point too, there is this portion of the market, like move up and people changing houses and things like that, where there are also like weird signs of optimism, and this actually came because we were talking about Home Depot was doing, looking at some previous conference calls and things like that. This was a quote from Home Depot's CFO Richard McFall during their analyst day call back in December, and I'm going to paraphrase a little bit. But basically, since 2019, the value of housing stocks has grown over 60%, and home equity values have gotten even bigger because people have been paying down their mortgage.

There's basically like $16 trillion worth of home equity that people could tap for various reasons, either to, like, move up into a new home or to make that renovation that we're talking about. The average home-to-loan value, how much like outstanding mortgages people have, it's down at the 27% range. That is, I think, one of the all-time lows because we have a very, very high proportion of home sales or owned homes in the United States that are owned outright that don't even have a mortgage on them anymore, people who have lived on their entire lives. Not sure if they're going to leave, but it's certainly significant in terms of how we think about the housing market in general. With them sitting on, as McFall said, was all this dry powder for use, you could make the argument that there is this coiled spring for renovations and spending and mortgage refinancings in the world of lower interest rates. I know there's other factors involved, but as to Matt's point, like, a lowered interest rate would have a significant impact on this in the long run. In this scenario, where you have this coiled spring of dry powder for renovations, for people to make moves in their houses or something like that, thinking about this whole industry in general, what would you as an investor be looking at? Are there companies in particular, or is there sectors? Like, what would get you excited on this idea of playing a multi-year tailwind for this industry?

Matt Frankel: The one number I would give to sum up pretty much all of what you just said is $35 trillion. That is the estimated total of all U.S. homeowners equity. That's, by far, a record high, that's roughly twice what we had going into the COVID pandemic. I'm looking at companies in the mortgage space for refinancing. Rocket Companies is a big investment of mine. They're the number one consumer-facing mortgage lender in the U.S. I like companies that specialize in renovation products. Trex is one that's been on my list for a little while now, and I think that, that's, decking is a project that people often finance with home equity. But, I mean, honestly, that $35 trillion number, this is a big enough opportunity that there could be plenty of winners in both the financial sector and in the consumer discretionary sector that produces renovation-type products. There's room for a lot of winners here.

Lou Whiteman: I'm much more bullish on the idea that people with homes will invest in their homes than I am bullish on the idea of an uptick in the housing market anytime soon and it's back to that inequality thing. If we are in this K-shaped economy, the haves and the have-nots, one of the lessons of the last year is people who can spend continue to spend, people with houses will continue to invest in their homes. That is different from saying that people who haven't been able to buy homes will be able to. I do think Home Depot outperforms the Home Builders for now. To be honest, I'm more interested in Home Depot or Lowe's than something like Trex. I'd rather have broad exposure than anything niche, I think, right now, but I do think, especially relative to housing, home improvement can work.

Tyler Crowe: Coming up after the break, we're going to take investor questions. If you want to get your questions answered on air, go ahead and email us at podcast at fool.com. That's podcast at fool.com. The three rules we've always said so far is one, keep it Foolish, two keep it short enough I can read it on air, and three, we cannot give personalized advice. Try to keep it to asking about an individual stock or what we as investors would do, rather than asking for personalized advice so Lou, Matt, and I don't get in trouble with the SEC.

Guys, I used to listen to a lot of classic rock radio, and they always used to do that double shot Tuesday gimmick. We're actually going to do two investor questions here because one's relatively short, and I think they're good general questions here. First one comes from Zach. The question is, he wants to know what to do with dividends. Do you let them get automatically reinvested ,or do you prefer to have more control where they go and the timing of when you actually purchase stocks? Zach would like a discussion on dividends and all types of investments account, depending on the type of investment account would be really, I appreciate it. Thanks, that's from Zach. Matt, what do you think? Reinvest or depends where it is. What company? What do you say?

Matt Frankel: If you asked me a decade ago, my answer would be very different. To be fair, dividend reinvestment used to be far more valuable than it is today. Until about 10 years ago, fractional shares weren't widely available to trade through pretty much any broker I know, maybe Robinhood, and you had to pay a commission on pretty much every single stock trade you make at the time, I think my commission was 699 a trade, even if I was buying one share. Dividend reinvestment allowed you to skip those things. You could buy fractional shares, not pay commissions, and have all of your dividends put into new shares to continue to compound. Now that's not an issue, so it's not quite as much of a no brainer as it used to be. With the account-by-account thing, so I still have my retirement accounts set to automatically reinvest dividends. That's where most of my dividend stocks are, first of all, like all my real estate investment trusts, they're pretty much in retirement accounts. It just makes it easier to compound your returns if you want to set, like, your retirement investments on autopilot. On the other hand, in my taxable account, I'm generally more actively looking for opportunities. I'm more likely to get into growth stocks. If I have any stocks linked to the AI trade, that's where they are. I like to let my dividends accumulate for a while and have the ability to put them to work wherever I see the best long-term value. Between my two main types of accounts, those are just my preferences.

Lou Whiteman: I have no firm rules here. As Matt says, for most stocks, the dividend is window dressing. It doesn't really move the needle on your investment, whether you take the cash and deploy it elsewhere or add it. I will say I'm more thoughtful about it on those handful of stocks where there is a meaningful yield. TFS Financial is one example in my portfolio where you're getting 8%. As long as the yield is that high, I want to reinvest it and get more of that return, so I will think it there. For the most part, I think the answer here is do what you want, don't overthink it. In terms of the account type, remember, you pay taxes on those dividends in a taxable account, even if they're reinvested, it's still a taxable event. Again, I think for the amount of words written about this, I don't really think it moves the needle for an investor, so just do what feels right for you.

Tyler Crowe: There's like hundreds of investor papers in investor research that's been done on, should you reinvest? Should you allocate the capital? What's the most tax efficient? Do you know what it is for me? I'm pretty lazy, and I just sometimes want to sit on my butt, so I just let the dividends reinvest. I don't have to think that hard about them, and you still get a pretty decent return.

Our second question comes from John Zengeri, I hope I said that name right. His question is more or less about green energy or alternative energy options here, it says, for various reasons, I'm very interested in moving past fossil fuels as an investor. What are some of the best ways to invest in green energy? Matt, why don't you go first? I feel like I have way more thoughts on this one, so I'll save mine for the end.

Matt Frankel: I was just going to say this question should have been directed to you. But, I mean, the biggest play on alternative energy in my own portfolio is Brookfield Corporation, ticker symbol is BN. They have their subsidiaries, they have Brookfield Infrastructure or Brookfield Renewable Energy. They have a few different partnerships that have various investments in different renewable energy infrastructure. I'm generally more of a I like investing in the tangible things, like the real estate, the infrastructure behind these plays. That's the biggest play that I have, but I'm curious to see what you're going to say, because that's where I form my watch list on energy stocks, anyway.

Lou Whiteman: I think I mean, look, I think what, Tyler? How much is Canadian Solar up since you mentioned it on this program? That makes you the Guru right there. But I agree with Matt, just with the Brookfields or whoever else. I don't want to be overexposed to one project or one technology. What I like about, like, the Brookfield approach, and there's others, too, not just Brookfield, is that you get so much exposure and you have smart people minding the shop in terms of what you have, that's my way to go about it, but go.

Tyler Crowe: Investing in alternative energy, at least for the previous 20 years has been a miserable experience because, despite being a rapidly growing industry, it's also fallen so far down the commodity curve in terms of pricing that a lot of people can't make it because you got to cut your costs so fast. I think that dynamics are changing now with basically, again, we've got to ring the bell, AI infrastructure build-out, but increased energy usage is changing the game in terms of electricity and pricing, and all those things are making basically almost anyone attractive these days. To that point, solar power in general is doing incredibly well recently. In the United States alone, they're expected to install 56 gigawatts worth of new solar in the United States in 2026. That's compared to out of these talks about nuclear, which maybe 10 years from now, we might get 60 gigawatts of new power. It's just moving that much faster, I think it's going to deploy incredibly well and probably solve a lot of the problems that we said nuclear is going to solve in coming years. At least when I'm looking at it right now, I think there's some really good investments in solar power in general, for solar and Canadian solar two companies that come to mind. I think over the next couple of years, if the trends that we're seeing with power development and how that power is getting allocated across gas, solar batteries, and all that stuff, I see utility-scale solar is going to be one of the biggest winners. For solar Canadian solar, it look like two pretty attractive options right now.

As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements in your sponsor content provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. Thanks to producer Dan Boyd and the rest of The Motley Fool team for Lou, Matt and myself, thanks for listening, and we'll chat again with you.

Lou Whiteman has positions in Brookfield Corporation, Brookfield Infrastructure Partners, Canadian Solar, TFS Financial, and Trex. Matt Frankel, CFP has positions in Brookfield Corporation and Rocket Companies. Tyler Crowe has positions in Brookfield Infrastructure Partners and Canadian Solar. The Motley Fool has positions in and recommends Brookfield Corporation, Home Depot, Rocket Companies, TFS Financial, and Trex. The Motley Fool recommends Brookfield Infrastructure Partners, Brookfield Renewable, and Lowe's Companies. The Motley Fool has a disclosure policy.