Home Depot (HD, Financial), the largest home improvement retailer in the U.S., finished fiscal 2014 with flying colors, delivering a solid growth in sales. It clearly demonstrates the growing traction for its offerings in the market. Further, the recovering housing segment is a key growth contributor for Home Depot.
Strong improvements across the board
It is exciting to see that Home Depot saw the greatest improvement along all its metrics in the whole fiscal year. This is good sign as it is indicating that the company is in good shape and with the favorable market conditions, this trend is expected to grow better in upcoming quarters. The management is confident of gaining market share in the future.
Home Depot is one such high-flying stock that the investors always look for. With the strong fiscal results, the company is well positioned for a better performance in 2015. In addition, any growth in the market will strengthen its position as the stock is already trading close to its 52-week high. Home Depot is now focusing on various initiatives to improve its profitability.
The company is seeing good growth opportunities not only in the U.S. but also on the international front as well. Due to favorable currency effect, Home Depot is expecting positive comps in markets of Mexico and Canada. However, the strengthening of the U.S. dollar may also strengthen its position in the local markets as well.
Moving on, Home Depot also acquired Supply Hardware solutions in the past. This seems to be a wise move by the company as it is expecting good synergies with this initiative. This acquisition will surely enhance Home Depot’s supply chain capabilities also strengthening its product offerings in the hardware segment.
Positive growth indicators
Home Depot is moving aggressively, having fired all its cylinders. Its growth story is expected to be benefited by many positive factors that are summing up in the present scenario. The recovering U.S. economy is becoming a growth driver for many industries including housing. This recovery in the economy has led consensus to forecast moderate growth in the GDP in the near future. This will also uplift the employment sector, generating many jobs which will improve the home sales. All these indicators continues to drive growth and productivity in Home Depot’s business in 2015.
The company has also taken certain strategic steps, putting its resources into it which are helping it now and are expected to continue doing so in the future as well. In the long term, if the company continues to grow at this rate, it is expecting its operating margins to improve by 13% which will further help it to improve its financial performance. Much of Home Depot’s preference is on achieving better market share.
To achieve it, the company has also undertaken a capital allocation strategy under. This will add much value to its shareholders' wealth. In order to attract more investors the company has a new share repurchase program worth $18 billion. This will add more cash to Home Depot, denoteing good flexibility in the balance sheet. This is expected to be a key growth driver of Home Depot’s success in future.
Conclusion
Now looking at the financials, with a trailing P/E of 24.94, the stock looks reasonable, and the forward P/E of 19.61 shows good growth in earnings in the near term. A profit margin of 7.63 in present market condition is impressive and can be a factor leading to good growth in market share in the future for Home Depot. All these valuation levels are encouraging and as of now Home Depot is definitely a good pick.
