Can Home Depot Stock Double in 5 Years?

Core Viewpoint - Higher interest rates have negatively impacted the housing market and adjacent industries, including Home Depot, which has seen muted revenue growth after previously strong performance [1][3] Group 1: Company Performance - Home Depot's stock has increased by 86% over the past five years, although this lags behind the broader S&P 500 index [2] - Same-store sales decreased by 3.2% in fiscal 2023 and 1.8% in fiscal 2024, with an expectation of a 1% increase in the current year [3] - Revenue is projected to grow at an average rate of 3.8% per year over the next three fiscal years, indicating limited excitement for investors [4] Group 2: Industry Context - The surge in home values has created trillions of dollars of equity in U.S. housing, which could drive demand for Home Depot as households may tap into this equity for renovations [4][5] - The company benefits from durable competitive advantages, including a massive scale with $160 billion in revenue for fiscal 2024, which provides operating leverage and negotiating power with suppliers [7] Group 3: Financial Strength - Home Depot has a strong brand reputation in a fragmented industry, known for wide inventory availability and customer service [8] - The company has maintained an average operating margin of 14.3% over the past decade, resulting in ongoing free cash flow production [8] - Home Depot has returned $17.3 billion in dividends over the past 24 months, maintaining a consistent dividend payment record for 152 consecutive quarters [9] Group 4: Future Outlook - For Home Depot's stock to double in the next five years, it would require a 15% compound annual growth rate in share price, which seems unlikely given historical EPS growth of half that amount since fiscal 2019 [10][12] - The current price-to-earnings ratio of 24.3 is slightly above historical averages, indicating that the starting valuation may not support significant future growth [11][12]