Stock market investing works best when investors think long-term. Investors can benefit from compounding over decades rather than days or months. The S&P 500 has averaged 10% annual returns, including dividends. However, some companies destroyed that gain.
In September 1981, $1,000 invested in one top retail stock at its IPO would be worth approximately $32 million today. Let's explore this company's rise and whether the shares are a good buy today.
Boring business, exciting returns Home Depot (NYSE: HD) has delivered such a great return, surprising investors. The company distributes home renovation supplies to DIYers and professionals through its outlets. It dominates its industry, surpassing Lowe's. The stock's strong performance is due to retail expansion. The chain now has 2,335 stores, mostly in the U.S. The firm claims 90% of Americans reside within 10 miles of a Home Depot.
Only 264 stores existed 30 years ago. Leadership invested heavily in growth since the business model could scale quickly. Revenue and profit growth drove the stock. The retailer is very profitable at its current size. In fiscal 2023, which concluded in January 2024, it earned $15 billion net income and $21 billion operating cash flow, well above the IPO forecasts.
The leadership team prioritizes shareholder returns. Home Depot has paid $16 billion in dividends in the past 24 months and yields 2%. It has paid dividends for 148 quarters, increasing shareholder returns and turning $1,000 into millions.
Is Home Depot stock worth buying? Recently, Home Depot shares haven't been as thrilling. Investors nevertheless profited from the stock. It has more than doubled in five years and nearly fivefold in a decade (March 26). These profits beat S&P 500. However, don't expect the stock's future to be like its history. It sold $153 billion in fiscal 2023 and has a $379 billion market cap. Growth is slowing and will continue.
The business is slowing after a boom in refurbishment projects during the pandemic's early stay-at-home days. Revenue fell 3% last fiscal year, but management expects a 1% increase this year. A non-growing company with a 25 price-to-earnings ratio may deter investors.
I still think long-term investors should buy now. Home Depot controls its business, has a strong brand, and can invest in its supply chain and omnichannel capabilities.
The business will remain unmatched in customer service. Home Depot should continue to gain market share in the $950 billion home improvement business and return to normal growth once economic headwinds recede. Expect rewards for investors.
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