The Home Depot, Inc. HD

Key data

The business

Home Depot sells building materials, tools, appliances, and the rest of what a house consumes, through big-box stores and now through distribution branches. Roughly half of revenue comes from professional contractors and half from homeowners. The company gets paid at the register and on trade accounts, and the engine is inventory velocity: 33.2% gross margin turned 4.21 times a year, which is how a retailer converts thin markup into $12.6 billion of free cash flow.

What changed is where the money goes. Demand still runs on housing turnover, because people renovate when they move and they move when mortgage rates let them, and turnover has been frozen for four years. Management answered by buying the professional channel, spending $17.64 billion on acquisitions in fiscal 2024 and $5.41 billion in fiscal 2025 to add SRS Distribution and GMS. Distribution carries structurally lower margin than the stores, and operating margin has fallen from 15.3% to 12.7%.

Business read. A cash machine with excellent unit economics, now carrying a lower-margin distributor bolted onto it.

Things you might not know

Interest coverage has fallen to 8.7 times from the double digits Home Depot used to run, and financial leverage sits at 6.58 times. The debt was raised to fund distribution deals, and it means the next idea has to be funded out of the same $12.6 billion of free cash flow.

In the quarter reported on 2026-08-18, sales rose 5.7% to $47.9 billion while comparable sales rose only 1.7%, and US comparable sales rose 1.3%. Total sales grew more than three times as fast as the comparable base, which is what buying revenue looks like in a single print.

Consensus does not model a return to the old earnings peak quickly. The February 2029 estimate is $17.39, six years after the $16.69 earned in fiscal 2022 and only 4% above it. At $335.61 that forward year is 19.3 times.

Fundamentals

The sequential jump from the first quarter to the second is seasonal and normal for a home improvement retailer, so the year over year column is the signal. Sales up 5.7% against comparable sales up 1.7% says the growth is bought rather than earned in the existing base, and adjusted earnings per share up 5.1% reverses the 3.7% decline reported in the first quarter.

Valuation

Peers: Lowe's (LOW), Fastenal (FAST), Tractor Supply (TSCO), Pool Corporation (POOL). All five measures trailing twelve months on one vendor basis as of 2026-08-22.

Home Depot trades about five turns above the peer median on earnings and nearly three turns above on EBITDA, and its 12.43% operating margin and 20.84% return on invested capital sit above the median on both. The premium multiple attaches to a company in year four of an earnings decline.

Management

Compensation

The linchpins

Win big if

Mortgage rates fall far enough to unfreeze housing turnover, deferred big ticket projects get released, and the acquired distributors carry that volume while store comps accelerate. The first observable proof is comparable sales climbing above the 1.7% posted on 2026-08-18 with big ticket transactions leading, the specific signal that deferred projects are moving. The confirming signal is operating margin stabilizing above 12.5% while earnings per share grow in fiscal 2026, with free cash flow back above $15 billion, which would restore the cushion under the dividend and let buybacks resume.

Surprised down if

Rates fall, turnover still does not move because the constraint is affordability rather than financing, and Home Depot is left carrying $23 billion of lower margin distribution revenue on a levered balance sheet. The first observable proof is comparable sales going negative through a full year of lower rates. The confirming signal is operating margin falling below 12% while revenue keeps growing, and the dividend payout ratio passing 75% of earnings, at which point the dividend competes with debt reduction and there is nothing left behind it.

Last word

Three years of falling earnings per share, and the buyback that used to fix that is now $0.