The Home Depot has had an incredible 2020 - and it's only partially because of the ridiculously large skeleton decoration the home improvement chain rolled out this October. On the contrary, Home Depot has been a clear winner and a bright spot in the broader retail industry which has been hit hard by 2020 on top of having declining economics. Looking at consumer spending reports for the year shows that in lieu of spending on things like travel, dining out, and leisure outside of the home, consumers have opted for hardware, paint, and yes - 12 ft. skeletons. The combination of consumer reports information and objectively strong financial results have lifted Home Depot shares through 2020. Shares are up approximately 24% YTD November 2020 and the future looks promising.
Granted, shares of Home Depot aren't up to the same degree that some fortunately positioned technology companies are so far in 2020 (e.g. Zoom Communications) - however the net growth Home Depot shares have seen over the past 11 months is of a different variety than the "Lockdown Stocks". For a bit of context, Home Depot is a large, Georgia based chain of home improvement stores that sells everything from building materials to light fixtures and live plants. As of mid-year 2020, Home Depot operated around 2,300 physical stores across North America, primarily in the U.S. In its most recent, non-covid affected year, Home Depot racked up $18.1B on $110B in revenues.
While the initial impact of the global health situation negatively impacted Home Depot's business, the company saw online sales increase by 100% in Q2 of 2020. Things have continued on this trajectory through Q3 for the firm, which recently reported that both QTD net profit and same-store sales are up 24% on a year over year basis.
This is where things start to get interesting for investors who are looking at the tremendous growth Home Depot has printed over the last five years and wondering if the firm has the gas to continue on the same trajectory.
The first thing to consider is that at its core, the Home Depot is a business that is aligned with the broader U.S. economy and like the economy, has grown slowly and steadily. This can be seen by looking at the firm's levered Beta of 1.13, which means that as the broader market trends upward, HD shares are likely to follow and with a bit more upside. Intuitively, this makes sense in that if the economy is doing well, the average consumer has more cash in their pocket and is more likely to spend that cash on a home renovation or leisure project facilitated by Home Depot. With a light at the end of the coronavirus tunnel - the prospect of a strengthening economy is a net positive for Home Depot.
Simultaneously, Home Depot has more than made it through the last six months (YTD Net Earnings are up 14.2% compared to 2019), effectively cruising through a challenging economic period due to the nature of their business and the products they sell. From this perspective, it appears unlikely that Home Depot shares are going to experience the kind of price contraction we've seen with other coronavirus-era darlings as a vaccine becomes more widely available. Given the market environment and the uncertainty ahead, this makes Home Depot one to watch for investors who are willing to buy shares of solid companies and stay invested.