Home Depot Stock Drops 12% in 3 Months: Should You Buy, Hold or Sell?

Core Viewpoint - Home Depot's stock has experienced a decline of 12.3% over the past three months, which is better than the broader industry's 14.7% drop but worse than the Retail-Wholesale sector and S&P 500 declines of 10.5% and 7.9%, respectively [1][6] Stock Performance - The current stock price of Home Depot is $362.75, representing a 17.4% discount from its 52-week high of $439.37 and a 12% premium from its 52-week low [5] - Home Depot's stock trades above its 200-day moving averages, indicating strong upward momentum and price stability [5] Growth Drivers - Home Depot has maintained consistent growth through its "One Home Depot" strategy, focusing on technology investments, supply-chain modernization, and digital transformation [8] - The company caters to both DIY customers and professional contractors, enhancing customer loyalty and market appeal [8][9] - A vast store network and a growing online presence position Home Depot well to meet evolving consumer demands [9] Operational Challenges - Home Depot faces challenges such as softened demand and pressure in high-ticket discretionary categories, affecting total and comparable sales [10] - For fiscal 2025, the company projects a 2.8% year-over-year increase in sales, a slowdown from the 4.5% growth in fiscal 2024, with comparable sales expected to rise just 1% [10] - The gross margin is forecast to remain flat at 33.4%, and the operating margin is projected at 13% [10] Profitability Pressures - Elevated interest rates are impacting consumer behavior and financing costs, with net interest expenses expected to rise to $2.2 billion in fiscal 2025 from $2.1 billion in the prior year [11] - Home Depot anticipates a 3% decline in GAAP earnings per share and a 2% year-over-year fall in adjusted EPS [12] Earnings Estimates - Home Depot's earnings estimates for fiscal 2025 have shown an uptrend, with a 0.2% increase in the Zacks Consensus Estimate for earnings per share in the last seven days [13] - The consensus estimate for fiscal 2025 sales implies 2.7% year-over-year growth, while earnings per share suggest a decline of 1.5% [13] Valuation - Home Depot's stock is currently trading at a forward 12-month P/E multiple of 23.56X, higher than the industry average of 20.55X and the S&P 500's average of 20.65X [14][15] - Competitors like Lowe's, Williams-Sonoma, and Haverty Furniture have lower forward 12-month P/E ratios, indicating that Home Depot's valuation may seem expensive [15] Investment Outlook - Despite the premium valuation and cautious outlook, Home Depot's growth initiatives and strong Pro customer sales position it well for the long term [18] - The prevailing headwinds necessitate a thorough evaluation of recent developments before making investment decisions [19]