Market Mad House

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


The Value at Home Depot (HD)

The Home Depot (HD) could lose its way in retail. The Home Depot fell from number five in Insider Intelligence’s list of Top 10 e-commerce companies to number seven.

Overall, Insider Intelligence estimates The Home Depot’s 2020 e-commerce sales at $20.02 billion. However, Insider Intelligence estimates the Home Depot’s online sales grew by 81.2% in 2020.

Sales at Home Depot Inc (NYSE: HD) rose in 2020 because of the COVID-19 pandemic. To explain, coronavirus trapped people at home with no excuse not to complete their home improvement projects. Many others wanted to upgrade their appliances and kitchens or improve their home furnishings.

Insider Intelligence predicts that Home Depot’s sales could cool in 2021 as the pandemic winds down and people leave the home. I disagree, instead, I think Home Depot’s sales could grow as more people buy new homes and landlords fix up homes after eviction. Notably the federal eviction is scheduled to end on 30 June 2021.

Accordingly, Stockrow estimates that Home Depot’s revenues grew by 32.7% in the quarter ending on 30 April 2021. The quarterly revenue growth rate rose by 25.13% in the quarter ending on 31 January 2021 and 23.19% in the quarter ending on 31 October 2020.

How Much Money is The Home Depot Making?

The Home Depot (HD) makes enormous amounts of money. For instance, Home Depot reported a quarterly gross profit of $12.155 billion, quarterly revenues of $37.5 billion and a quarterly operating income of $5.781 billion on 30 April 2021.

Impressively, Home Depot made more money during the pandemic year. For example, Home Depot’s quarterly gross profit grew from $9.105 billion on 30 April 2020. In addition, the quarterly operating income grew from $3.276 billion on 30 April 2020.

Moreover, the quarterly revenues grew from $28.26 billion on 30 April 2020. I think these numbers show that Home Depot will grow faster in 2021.

How Much Cash Does the Home Depot generate? 

Additionally, the Home Depot’s quarterly operating cash flow grew from $5.737 billion on 30 April 2020 to $6.310 billion on 30 April 2021. However, the quarterly ending cash flow fell from $8.696 billion on 30 April 2020 to $6.648 billion on 30 April 2021.

Conversely, I think the quarterly ending cash flow only fell because Home Depot reporting a quarterly financing cash flow of $7.07 billion on 30 April 2021. Thus, the Home Depot paid off $7.07 billion in debt in the last quarter.

However, the Home Depot had $41.943 billion total debts on 30 April 2021. The total debts rose slightly from $41.750 billion on 30 April 2020. Thus, Home Depot has enormous amounts of debt but it pays those debts.

Home Depot is adding enormous amounts of value

Home Depot offers enormous amounts of value. The company had Total Assets of $72.567 billion on 30 April 2021.

The Total Assets grew from $58.737 billion on 30 April 2020. Therefore, The Home Depot (HD) added $13.83 billion in Total Assets during the pandemic year.

Thus, Home Depot is adding enormous amounts of value. However, Home Depot is accumulating less cash. Notably, Home Depot’s cash and short-term investments fell from $8.696 billion on 30 April 2020 to $6.648 billion on 30 April 2021.

The Home Depot is Taking a Huge Gamble

Hence, Home Depot’s management is taking a huge gamble. The gamble is that the new assets will generate enough money to pay off all the debt the company is accumulating.

Thus, the risk at Home Depot is higher than many people realize. In addition, the Home Depot has a lower margin of safety than people realize. Like many other retailers, the Home Depot accumulates debt but has a hard time keeping cash.

On the other hand, many investors bet that the growth at Home Depot overcomes the risk the company accumulates from the debt. The danger will come if Home Depot (HD) stops growing, and loses its margin of safety.

For instance, a lack of growth could force Home Depot to close stores, reduce operations or sell assets to pay debt. However, the financial numbers show the Home Depot’s gamble paid off during the pandemic year.

 Mr. Market Overvalues Home Depot

I think Mr. Market overvalued Home Depot (NYSE: HD) at $310.77 on 11 June 2021. I think Home Depot is not worth $310.77 because of its low margin of safety.

Mr. Market, however, disagrees. He paid $256.77 for Home Depot on 8 June 2020. Thus, Home Depot is capable of enormous share value and market capitalization growth.

I advise investors to avoid Home Depot because I think the $309.59 share price is unsustainable. I believe the share price will collapse because I suspect Home Depot’s growth is unsustainable.

The Wonderful Home Depot Dividend

Thus, I consider the Home Depot’s principal attraction to be the $1.65 quarterly dividend it will pay on 17 June 2021.

Impressively, that dividend grew from $1.50 on 2 December 2020. Hence, Home Depot’s dividend grew by 15₵ over the past year. In total, Home Depot (HD) shares offered a $6.60 annualized dividend and a dividend yield of 2.12% on 8 June 2021.

In the final analysis, The Home Depot (NYSE: HD) is a great dividend stock that carries a lot of risk. Keep Home Depot in your portfolio if your dividend but do not buy it at $310.77.