Home Depot Looks Overvalued After 80% Gains

After an 80% rise since the March lows of this year, at the current price of around $270 per share, we believe Home Depot’s stock (NYSE: HD) has reached its near term potential. The home improvement retailer has seen its stock outperform through the coronavirus crisis, rising by almost 27% year-to-date (compared to a 2% growth in the S&P), benefiting from the stay-at-home bump. Home Depot’s stock is already about 54% higher than it was at the end of 2017. Our dashboard, What Factors Drove 54% Change in Home Depot Stock Between 2017 and Now?, provides the key numbers behind our thinking, and we explain more below.

Some of this growth over the last few years is justified by the roughly 9% increase in Home Depot’s revenues from $100.9 billion in 2017 to $110.2 billion in 2019. In addition, earnings growth, on a per-share basis, was higher by 40%. This was driven by a 160 bps net margin expansion from 8.6% to 10.2% and a 7% decline in shares outstanding during this period.

Finally, Home Depot’s P/E ratio grew from about 24x at the end of 2017 to 26x currently. The company’s P/E Multiple is yet to see a meaningful decline from the current 26x levels, which still remains 27% higher than the levels of 21x seen in 2019. We believe that the stock could remain rangebound around the current levels in the near term.

So how has Coronavirus impacted the stock?

Home Depot has remained open as an essential retailer during the pandemic restrictions and has benefited from home improvement projects. In

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