Is The Home Depot Inc (HD) A Great Value Stock? @ycharts

Johnny HopkinsStock ScreenerLeave a Comment

Based on the improved performance metrics, which we recently added to our stock screens, The Home Depot Inc (HD) could be a great value stock:

Home Depot is the world’s largest home improvement specialty retailer, operating more than 2,300 warehouse-format stores offering more than 30,000 products in store and 1 million products online in the United States, Canada, and Mexico. Its stores offer numerous building materials, home improvement products, lawn and garden products, and decor products and provide various services, including home improvement installation services and tool and equipment rentals. The acquisition of distributor Interline Brands in 2015 allowed Home Depot to enter the maintenance, repair, and operations business, which has been expanded through the tie-up with HD Supply (2020). The addition of the Company Store brought textile exposure to Home Depot’s lineup.

A quick look at the share price history for the company (below) over the past twelve months shows that the price is down 11%.

HD Chart

HD data by YCharts

Even though the company has a market cap of $309 Billion and a price of $296, here’s why the company could be a great value stock:

Acquirer’s Multiple YChart

INTC EV to EBIT Chart

INTC EV to EBIT data by YCharts

Bubble Map

Implied Value To Price

0.80

IV/P or Intrinsic Value to Price: This column compares the stock’s Implied Value (Earning PowerIncremental Growth plus Shareholder Yield)to the current price. The number represents the value offered for each dollar invested. IV/P greater than one (1) indicates that each dollar invested receives more than $1 of Intrinsic Value. IV/P less than one indicates less than $1 of Intrinsic Value for each dollar invested. The IV/P is necessarily a rough estimate. These stocks benefit from mean reversion in multiples, and no mean reversion in fundamentals. Where the market is applying a lower Acquirers Multiple to a stock’s Expected Return, it may indicate an undervalued opportunity. This is a profitability-at-a-reasonable price screen. Historically, getting more an IV/P lower than about 0.6–each dollar invested buys 60 cents or less of Intrinsic Value–is overvalued.

Acquirer’s Multiple

15.30

Acquirers Multiple: Ranking on this column shows the stocks with the lowest multiples in the universes. These are deep value stocks that may benefit from mean reversion in the underlying businesses. This is the traditional deep value screen.

Expected Return (%)

39

E(r) or Expected Return (%): The sum of a stock’s Earning PowerIncremental Growth and Shareholder Yield. This is a variation of Bruce Greenwald’s calculation. It assumes no mean reversion in multiples or fundamentals.

Return On Assets (5YAvg%)

32

ROA or Return on Assets: Ranking on this column shows the stocks with the highest five-year average operating income returns on total assets. These are the most profitable companies in the universes over the last five years.

Incremental Growth (%)

0.00

Incremental Growth (%): This is the reinvestment rate (capital expenditures less depreciation divided by total assets) multiplied by ROA. It can be positive–if cap ex exceeds depreciation–or negative–if cap ex falls short of depreciation. Companies with a high reinvestment rate and a high ROA will score higher on the Incremental Growth metric. Low or negative reinvestment rates and a low ROA will score lower on the Incremental Growth metric.

FCF Yield (%)

4.52

FCF Yield or Free Cash Flow Yield: Trailing Twelve-Month Free Cash Flow  divided by Market Capitalization. Another traditional deep value screen. These stocks benefit from mean reversion in fundamentals and multiples.

Shareholder Yield (%)

6.90

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