Monday, December 27, 2010

Quick Analysis: Home Depot (HD)

HD: Home Depot

Retail for general home contactors and do-it-yourself home repairs

Recent Range: $21/share – $40/share (Current Price: 35.09, as of close of 12/23/10)
Price/Sales (P/S) = 0.85 (0.80, Industry)
Price/Book (P/B) = 3.01 (2.56)
Gross Margin = 34.2% (33.8%)
Pre-Tax Margin = 7.0% (6.7%)
Debt/Equity Ratio = 0.51 (0.42)
Current Ratio = 1.3 (1.3)
Return on Equity = 15.9% (13.4%)
Return on Assets = 7.2% (6.6%)

Analysis: This company has widely recognizable name and has a great company concept. However, I am lukewarm on the stock.

The business has the benefit of brand awareness, and the sluggish economy encourages a lot of people do their own repairs. Plus, the company actively develops relationships with general contractors. So they have a steady marketplace within an economy that remains ripe for it.

The company’s current ratio is solid and can withstand a period of lower sales, if required. It is not likely to go bankrupt anytime soon. It is in line with others within its industry.

Their stock price seems to be in line with its competitors. This means that the stock is priced fairly, which indicates that the stock price is not overpriced, but it’s not a bargain, either.

I also do not like the fact that the debt ratio is a little higher than the industry average. I can overlook this when a company is getting really good returns on the money it borrows, but it seems to be only a little better than its competition.

I would not scream for you to sell, if you already own this stock. However, I will not recommend that you buy this. I am not guaranteeing that the stock price will not rise, but there does not seem to be enough potential upside for me to suggest buying this.

No comments:

Post a Comment