Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Coronavirus is good for Home Depot?

I have to ask if coronavirus is good for Home Depot (NSYSE: HD)? Notably, Home Depot’s share price rose from $152.15 on 20 March 2020 to $201.53 on 9 April 2020 to $207.17 on 14 April 2020.

However, Home Depot is still below the $225.70 share price Mr. Market gave it on 10 March 2020. Hence, Home Depot has some protection from the economic effects of the COVID-19 pandemic.

Oddly, news stories claim coronavirus is boosting Home Depot’s foot traffic. For instance, The Washington Post claimed “The streets are empty, but Home Depot isn’t” on 9 April 2020.

The Pandemic is good for Business at Home Depot

WashPost reporter Petula Dvorak describes the “paint guys” at an Upper Marlboro, Maryland, as exhausted. The employees became exhausted because bored do-it-your-selfers are flooding Home Depot in search of supplies.

Vast numbers of Americans are completing or starting all the home improvement and repair projects they have been putting off, Dvorak speculates. Accordingly, Dvorak found long lines and crowds at Home Depot and Lowe’s (NYSE: LOW) stores around Washington DC.

Moreover, the pandemic is striking at the beginning of the gardening season, leaving millions stuck at home with nothing to do. Hence, thousands of gardeners are heading to Home Depot and Lowes in search of seed, bulbs, and tools.

Additionally, people need something to do and someplace to go and Home Depot is one of the few places still open. To clarify, local governments consider Home Depot “an essential business” so it stays open in the epidemic.

Is Home Depot Making Money?

Financial data shows Home Depot Inc. (NYSE: HD) made money last quarter. Specifically, Home Depot reported a gross profit of $8.736 billion on revenues of $25.782 billion for the quarter ending on 31 January 2020.

Moreover, Home Depot reported a $3.403 billion quarterly operating income and a $2.481 billion quarterly common net income on the same day. Consequently, Stockrow estimates Home Depot had a 9.62% profit margin in the last quarter.

Additionally, Home Depot reported an operating cash flow of $3.059 billion cash flow last quarter. However, Home Depot reported a -$60 million ending cash flow on 31 January 2020.

Yet, Home had $2.133 billion in cash and short-term investments on 31 January 2020. Hence, I consider Home Depot a profitable and cash rich company with a growing business.

 Is Home Depot a Crisis-Resistant Company?

I consider Home Depot a crisis-resistant company. In fact, Home Depot does more business in some crises.

Hence, Home Depot could be the perfect stock for coronavirus age. Notably, Dr. Anthony Fauci predicts another coronavirus outbreak will hit the United States in the fall.

Fauci is the director of the National Institute of Allergy and Infectious Diseases. To clarify, Fauci thinks COVID-19 will still be around in the fall. In addition, many people could lose their immunity to Coronavirus in September causing a new outbreak, Business Insider claims.

Furthermore, it could take 18 months to develop, test, and distribute a coronavirus vaccine. Hence, lockdowns, social distancing, and stay at home orders could be the new status quo for the next two years. Thus, people will spend more time at home and more time working on their homes.

Home Depot could have a Great Year

Thus, Home Depot could experience another surge of business in the fall. Additionally, Home Depot could see a big surge of business in May – if social distancing ends on 30 April 2020.

I think Home Depot see a surge of business in May because people will begin inviting contractors and handymen back into their homes to work on them. Thus, I predict Home Depot will have a great year in 2020.

Many people stuck at home will see the problems with their living places. For example, people will see that wallpaper or the paint they cannot stand all day. Or that old oven they hate using. Consequently, many of those people will launch home improvement projects which could require supplies and tools from Home Depot.

Additionally, many people will need something to do because they are not at work. Home improvement projects and gardening are two of the activities those bored people will turn to.

Is Home Depot a Great Value Stock?

I consider Home Depot (NYSE: HD) an overpriced stock at the $207.17 price Mr. Market gave it on 14 April 2020.

However, I think Home Depot is a good dividend stock with a high margin of safety. Impressively, Home Depot paid a $1.50 dividend on 11 March 2020. That dividend grew from $1.36 on 4 December 2020.

Plus, credits Home Depot with seven years of dividend growth. Overall, Home Depot shares offered an annualized payout of $6, a dividend yield of 30.02%, and a payout ratio of 60.05% on 14 April 2020.

Hence, I think Home Depot’s shares will retain their value and investors can make money from. If you are looking for a safe retail stock, Home Depot is a good choice. Yet, I cannot recommend HD because of the high share price.