Why I’m Not Buying Home Depot (HD) and Lowe’s (LOW) Stock Right Now
Home Depot and Lowe’s are no doubt some of the most successful companies in America. Over the last couple of years, they have greatly benefited from shifts in consumer behavior.
The global pandemic caused lots of homeowners to spend more time at home as offices were closed for safety and remote work became the new normal for them. Similarly, government imposed lock-downs and travel restrictions led many to substantially cut back spending on activities like dining out and vacations.
Naturally, being forced to spend more time at home and having more money available shifted the spending focus on projects in and around the house. This included all kinds of home improvements (e.g. painting, new appliances, smart home technology, furniture, landscaping and gardening).
Needless to say, big box home improvement stores like Home Depot and Lowe’s were primary beneficiaries of this home spending craze as you can see in the stats below. Lowe’s stock more than doubled in price and Home Depot came close to that as well. Both stocks are not too far off their 52-week highs, which they hit earlier this month.
Before (March 1, 2020)
LOW Close $106.57
HD Close $217.84
Now (December 17, 2021)
LOW Close $248.09
HD Close $387.98
52-Week High
LOW Close $263.31 (December 13, 2021)
HD Close $420.61 (December 6, 2021)
The question is whether this trend is sustainable. Will homeowners continue to spend money on home improvements or will they normalize their spending pattern to what they were doing before.
I, for one, believe homeowners are more likely to revert or at least move closer to the way they spent before.
That’s partly based on personal experience. I have undertaken numerous home improvements and while it’s true there’s always more I could spend on, I don’t believe I have enough left to do to get anywhere close to how much I spent in the last couple of years. It can get exhausting after a while and I have shifted more toward maintenance mode. There is a level of fatigue that sets in after a while. I also find myself spending more on restaurants and I’m taking the family on a vacation. In other words, I no longer feel as though there was a financial surplus I could spend on home improvements. I suspect it’s the same for many other homeowners.
Where does this leave us with Home Depot and Lowe’s? Well, unless something else happens, like going back into lockdowns or more people suddenly buying houses or earning a lot more, I believe their growth will decelerate to say the least. Worse, if their revenue starts to decline year over year, the market will react harshly.
The fact that interest rates are rising seems to be a bear signal for these stocks as well. When borrowing becomes more expensive, homeowners are less likely to spend as much on costly home improvement projects. Mortgages will also be worse off. Nobody will want to refinance at a higher rate obviously and home purchases could also become even more expensive, which means homeowners will have less money available to spend at places like Home Depot and Lowe’s.
That being said, I hope things will turn out better for both stores. I’ll always be a customer, though that doesn’t mean I’ll be visiting as frequently.
I could be wrong of course but for all these reasons, I won’t be buying Home Depot (HD) and Lowe’s (LOW) stock anytime soon.
