In this article, we will be looking at 10 home improvement stocks to buy now.
Home improvement represents a growing sector of the U.S. economy, with its size expected to surpass the $600 billion level by 2025, according to Statista. The current market size stands at around $538 billion. One of the key themes of the home improvement sector is the home decoration category, which comes in full swing during the second-half of the year, especially during the Christmas season.
Although many sectors came under pressure during the COVID-19 pandemic, the home improvement sector saw a dramatic acceleration, as homeowners found extra time to work on do-it-yourself (DIY) and home improvement projects. Research by HomeAdvisor reveals that nearly 35% of Americans indulged in repainting their living space or some sort of garden landscaping during the pandemic. Meanwhile, 70% of Americans decided to start a home improvement project during the lockdowns. The pandemic made people realize that their homes should not only be suited for living purposes but also for other aspects like work, education, and outdoor activities. Some homeowners also opted to install security cameras or high-speed internet.
It must be noted that half of the houses in the U.S. were constructed before the 1980’s, and that given the rising price of new homes, people are increasingly choosing to renovate their existing living spaces rather than moving into new homes. According to iPropertyManagement, 28% of Americans think it is better to renovate their house rather than move to a new location. And as homes inevitably become older, the demand for renovations increases. The average cost of undergoing an exterior home improvement project such as fencing, replacing gutters, or roofing, costs around $15,000. Meanwhile, according to the Remodeling calculator, the complete cost of renovating a house takes up to between $44,000 and $75,000; thus, homeowners often prefer to perform renovations on a room-by-room basis.
The industry has a bright outlook, as millennials spend 60% more funds on home improvement than their predecessors and pursue 30% more home improvement projects. This is significant, because in terms of demographics, this generation has the highest number of homeowners. Furthermore, there is a rising trend of smart homes and higher demand for energy-friendly appliances, which is also providing stimulus to the home improvement sector. Nearly 77% of millennials have invested in smart home upgrades. On the other hand, home improvement companies have also adapted during the pandemic due to social distancing and other protocols, as 61% of the companies have adopted digital presentation tools to demonstrate their offerings. Some of the leading companies in the home improvement sector include The Home Depot, Inc. (NYSE:HD), Lowe’s Companies, Inc. (NYSE:LOW), and Builders FirstSource, Inc. (NYSE:BLDR).
Our Methodology
Let’s go through our list of the ten home improvement stocks that investors should buy now. We looked into the financial strength of these companies and discussed relevant analyst ratings. We also analyzed the growth prospects being offered by these stocks. The companies have been ranked according to the level of hedge fund ownership, ascertained through Insider Monkey’s database of 895 hedge funds that filed 13Fs for the Q2 2022 reporting period.
10 Home Improvement Stocks to Buy Now
10. LL Flooring Holdings, Inc. (NYSE:LL)
Number of Hedge Fund Holders: 9
LL Flooring Holdings, Inc. (NYSE:LL) is a Richmond, Virginia-based retailer of hard-surface flooring, flooring tools, and accessories. The company, formerly known as Lumber Liquidators, intends to achieve annual revenue of $1.5 billion by 2024 through a combination of new store locations and low-single-digit comparable store sales growth.
LL Flooring Holdings, Inc. (NYSE:LL) is currently facing pressure on margins due to cost-push inflation, which gives investors an attractive opportunity to go long on the stock. LL Flooring Holdings, Inc. (NYSE:LL) stock is trading at a non-GAAP forward P/E multiple of 14.34x as of August 29, reflecting a discount of 31.3% as compared to its five-year average non-GAAP forward P/E multiple of 20.87x.
As of August 29, LL Flooring Holdings, Inc. (NYSE:LL) stock price is hovering around the $9 level. Once consumer confidence improves and fear of inflation subsides, the stock price should be expected to go into the mid-teens and yield healthy returns for investors.
Like The Home Depot, Inc. (NYSE:HD), Lowe’s Companies, Inc. (NYSE:LOW), and Builders FirstSource, Inc. (NYSE:BLDR), LL Flooring appears to have a bright future given the growing demand for home renovation products.
9. Haverty Furniture Companies, Inc. (NYSE:HVT)
Number of Hedge Fund Holders: 12
Haverty Furniture Companies, Inc. (NYSE:HVT) is an Atlanta, Georgia-based retail corporation with a history of over 137 years. The company has over 120 showrooms in the Midwestern and Southern regions of the U.S.
To boost shareholder returns, Haverty Furniture Companies, Inc. (NYSE:HVT) approved a share buyback plan of $25 million on August 5. The company’s stock has a forward dividend yield of 3.86%, which is significantly higher than the U.S. 10-year Treasury bond yield of 3.11% as of August 29. Haverty Furniture Companies, Inc.’s (NYSE:HVT) dividend payout ratio is just above 20%, which reflects the security of its dividends in the long term. Furthermore, the company’s dividend growth rate has been 16.5% over the last half-decade.
Since 2012, Haverty Furniture Companies, Inc. (NYSE:HVT) has incentivized its shareholders by offering them a special dividend on six occasions. Haverty Furniture Companies, Inc. (NYSE:HVT) intends to add two new stores to its portfolio during the next quarter. The company offers strong business fundamentals and is well-positioned for growth in the industry.
Renaissance Technologies was the leading hedge fund investor in Haverty Furniture Companies, Inc. (NYSE:HVT) during Q2 2022.
8. Arhaus, Inc. (NASDAQ:ARHS)
Number of Hedge Fund Holders: 13
Arhaus, Inc. (NASDAQ:ARHS) is a Cleveland, Ohio-based décor and furniture retail company that is focused on sourcing sustainable raw materials for its products. Of the 895 hedge funds in Insider Monkey’s database, Arhaus, Inc. (NASDAQ:ARHS) was held by 13 elite funds as of Q2 2022.
Arhaus, Inc. (NASDAQ:ARHS) reported better-than-expected results for Q2 2022 on August 11. Revenue jumped by 66.4% year-over-year (YoY) to $306 million, surpassing analysts’ forecast of $252 million by a significant margin. On the other hand, the firm’s GAAP EPS of $0.27 was nine cents higher than analysts’ expectations. Arhaus, Inc. (NASDAQ:ARHS) also guided that it anticipates revenue to be in the range of $1.17 billion to $1.19 billion during 2022 as compared to the consensus forecast of $1.17 billion.
Following the results, Adrienne Yih at Barclays reiterated an ‘Overweight’ rating on Arhaus, Inc. (NASDAQ:ARHS) stock with a target price of $14 on August 15. The analyst termed the Q2 2022 results “impressive”, as they surpassed revenue and profitability predictions handsomely.
7. Tecnoglass Inc. (NYSE:TGLS)
Number of Hedge Fund Holders: 14
Tecnoglass Inc. (NYSE:TGLS) is a Colombian manufacturer of insulated, laminated, and tempered glass along with aluminum products for residential and commercial purposes. Millennium Management increased its stake in Tecnoglass Inc. (NYSE:TGLS) by 114% during Q2 2022.
Tecnoglass Inc. (NYSE:TGLS) posted its Q2 2022 results on August 4. The company surpassed consensus estimates comprehensively, as the top line increased by 38.9% YoY to $169 million, handily beating analysts’ expectations of $149 million. Meanwhile, the company’s adjusted EPS of $0.69 outperformed the consensus estimate of $0.57. Tecnoglass Inc. (NYSE:TGLS) also experienced an expansion of 310 bps in gross profit margins as compared to the same period last year.
Following the results, Alex Rygiel at B. Riley increased the price target on Tecnoglass Inc. (NYSE:TGLS) from $32 to $34 on August 5 and maintained a ‘Buy’ rating on the stock. The analyst termed the Q2 2022 results as strong and highlighted that Tecnoglass Inc. (NYSE:TGLS) had also included the single-family residential window market in its portfolio.
6. Tile Shop Holdings, Inc. (NASDAQ:TTSH)
Number of Hedge Fund Holders: 15
Tile Shop Holdings, Inc. (NASDAQ:TTSH) is a Plymouth, Minnesota-based retailer of wall and floor tiles. During Q2 2022, Tile Shop Holdings, Inc. (NASDAQ:TTSH) saw its revenue increase by 11.9% YoY to $108 million, topping analysts’ forecast of $100 million. Meanwhile, adjusted EPS of $0.13 also beat consensus expectations by seven cents.
Following the strong quarterly results, Tile Shop Holdings, Inc.’s (NASDAQ:TTSH) Board of Directors also approved a share buyback plan of $30 million to enhance shareholder returns. Although the near-term revenue outlook of the company may appear shaky due to inflationary pressures, its new products like luxury vinyl tiles have observed an inelastic demand that could aid in increasing the top line in the long term.
SRK Capital shared its stance on Tile Shop Holdings, Inc. (NASDAQ:TTSH) in its Q4 2021 investor letter. Here’s what the firm said:
“The Tile Shop reported its best third quarter in company history with a 13% increase in net sales to over $92 million as demand has continued to remain elevated with an incredible strong order book. In my previous letter to you I mentioned: “What to do with the cash? If history is any indication of what Peter Kamin controlled companies do, we can speculate that there is potentially a return of capital in shareholders future.” That speculation turned out to be correct as the company declared a special dividend of $0.65 per share, close to our average purchase price in 2020. The thesis for TTSH has played out wonderfully over the past two years. The final piece of the puzzle will be an entire sale of the company, and even though I do believe the company will eventually be sold, I have been reducing the size of our position to put the capital to use in what I believe are better risk/reward opportunities.”
Cannell Capital was the leading hedge fund investor in Tile Shop Holdings, Inc. (NASDAQ:TTSH) as of Q2 2022, with a stake worth over $6.7 million.
Besides Tile Shop Holdings, Inc. (NASDAQ:TTSH), stocks such as The Home Depot, Inc. (NYSE:HD), Lowe’s Companies, Inc. (NYSE:LOW), and Builders FirstSource, Inc. (NYSE:BLDR) are also included in our list of 10 home improvement stocks to buy now.
5. Floor & Decor Holdings, Inc. (NYSE:FND)
Number of Hedge Fund Holders: 30
Floor & Decor Holdings, Inc. (NYSE:FND) is a multi-channel specialty retailer of hard floor surfaces like laminate, stone, tile, and vinyl, along with their accessories. The company has 166 stores based on the warehouse format with an average size of 78,000 square feet, which is significantly higher than its industry peers. The warehouse format allows Floor & Decor Holdings, Inc. (NYSE:FND) to have a diverse portfolio of products and enough space to display the offerings attractively to its customers.
Experts believe that given Floor & Decor Holdings, Inc.’s (NYSE:FND) price leadership position in the market, the company could see its top line grow at a conservative estimate of 20% annually. Floor & Decor Holdings, Inc. (NYSE:FND) intends to increase its store coverage three-fold from its current footprint and increase its operating margins into the high-teens.
Here’s what Headwaters Capital said about Floor & Decor Holdings, Inc. (NYSE:FND) in its Q1 2022 investor letter:
“Floor & Decor (“FND”) -38%. The sell-off in Floor and Décor was driven by general concerns around slowing consumer discretionary spending as stimulus benefits wane and consumers shift their spend toward services. More specifically, there is also concern that slowing home sales due to higher mortgage rates will negatively impact home remodel spending. I believe a lot of this remodel concern is misplaced given that the US housing stock continues to age and consumers are sitting on record levels of home equity due to recent home price appreciation, which should support continued strong remodel activity. As of FND’s analyst day on March 14th, management had not yet seen signs of slowing consumer spending given that the company reiterated guidance for same store sales growth of at least 10% for 2022. FND is currently trading at a 20% discount to its pre-COVID multiple, which represents an attractive valuation for a competitively advantaged specialty retailer with a long runway for new store growth.”
Floor & Decor Holdings, Inc. (NYSE:FND) was held by 30 hedge funds at the end of Q2 2022.
4. The Sherwin-Williams Company (NYSE:SHW)
Number of Hedge Fund Holders: 54
The Sherwin-Williams Company (NYSE:SHW) is an Ohio-based company that is involved in the manufacturing and supply of paint and coatings.
In a note issued to investors on July 28, David Begleiter at Deutsche Bank maintained a ‘Buy’ rating on The Sherwin-Williams Company (NYSE:SHW) stock, with a target price of $275. The target price reflects potential upside of over 16.6% from the closing price as of August 29. The analyst addressed the missed revenue and adjusted EPS estimates for Q2 2022 and commented that the stock would be in the penalty box following the weak results.
However, The Sherwin-Williams Company (NYSE:SHW) guided that it anticipates year-over-year (YoY) revenue growth of low to mid-teens during Q3 2022. Assuming a 12.5% YoY growth from last year’s revenue of $5.15 billion, the expected revenue for Q3 2022 would be $5.79 billion, which is $60 million higher than analysts are forecasting.
In its Q1 2022 investor letter, ClearBridge Investments shared its outlook on The Sherwin-Williams Company (NYSE:SHW). Here’s what the firm said:
“Rounding out our risk-focused stance, we believe the addition of Sherwin-Williams (NYSE:SHW), a manufacturer of paints and coatings for professional, industrial and retail customers, adds further resilience in the current inflationary environment. Paint is a relatively small part of total project input costs which can be passed through with price during inflation, and the company has a track record of successfully managing through periods of increased commodity costs. We are attracted to the company’s durability of growth by operating a strong franchise with both organic growth and consolidation amassing a strong portfolio of brands. We like Sherwin-Williams over competitors in the paint industry due to higher volumes, a domestically focused revenue base and strong relationships with the home builder and pro community. We believe the company will be able to keep pricing and expand margins as commodity pressures ease.”
3. Builders FirstSource, Inc. (NYSE:BLDR)
Number of Hedge Fund Holders: 57
Builders FirstSource, Inc. (NYSE:BLDR) is a Dallas, Texas-based supplier of building materials, prefabricated components, and value-added services in the U.S. Overall, 57 funds held a stake in Builders FirstSource, Inc. (NYSE:BLDR) at the end of Q2 2022.
Joseph Ahlersmeyer at Deutsche Bank initiated coverage on Builders FirstSource, Inc. (NYSE:BLDR) stock with a ‘Buy’ rating and a target price of $93 on August 17. The analyst has a bullish outlook on the home improvement industry due to the aging profile of U.S. homes along with the high mortgage rates prevalent in the market, which has locked current homeowners into their present locations. The price appreciation of homes is also playing a role in encouraging people to renovate their existing houses. Experts anticipate continued strength during the second-half of the year and throughout 2023, which will aid Builders FirstSource, Inc. (NYSE:BLDR) in generating healthy free cash flow, which it can then use for share repurchases and acquisitions.
Here’s what Black Bear Value Partners said about Builders FirstSource, Inc. (NYSE:BLDR) in its Q1 2022 investor letter:
“Builders FirstSource is a supplier and manufacturer of building materials for professional homebuilders, subcontractors, remodelers, and consumers. Their products include factory-built roof and floor trusses, wall panels and stairs, vinyl windows and custom millwork.
The fundamental discussion about homebuilders applies to BLDR. As more homes are built across the country, there will be an increased need for scaled sourcing of products to homebuilders. There is a large amount of fragmentation in the supply chain which provides BLDR a long runway for acquisitions and realistic synergies.
BLDR should be able to generate $7-$10 a share in cash in the medium term with significant upside if they can scale through acquisition and/or further penetrate existing markets. We own it at a 13-19% free-cash flow yield so little growth is needed for us to compound value at high rates.”
2. Lowe’s Companies, Inc. (NYSE:LOW)
Number of Hedge Fund Holders: 65
Lowe’s Companies, Inc. (NYSE:LOW) is a Mooresville, North Carolina-based specialty retail company in the home improvement sector. Pershing Square was the leading hedge fund investor in Lowe’s Companies, Inc. (NYSE:LOW) during Q2 2022.
Following the company’s Q2 2022 results that were posted on August 17, Scot Ciccarelli at Truist increased the price target on Lowe’s Companies, Inc. (NYSE:LOW) from $237 to $263 and maintained a ‘Buy’ rating on the stock. The analyst highlighted that the customer trend for Lowe’s Companies, Inc. (NYSE:LOW) remains strong, with DIY sales showing signs of a positive inflection point, and profitability under control. Ciccarelli anticipates further re-rating during the second-half of 2022 and early 2023. While the analyst shared that the sentiments regarding the macroeconomic outlook and housing remain negative, the comparable sales for big-ticket items grew by 4.7% YoY, and there are no signs of trading down at Lowe’s Companies, Inc. (NYSE:LOW).
1. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 75
The Home Depot, Inc. (NYSE:HD) is an Atlanta, Georgia-based home improvement retailer in the U.S.
Home Depot, Inc. (NYSE:HD) achieved annual sales of $131 billion in 2021. Following the release of the company’s strong Q2 2022 results, Steven Forbes at Guggenheim increased the target price for The Home Depot, Inc. (NYSE:HD) from $350 to $355 and maintained a ‘Buy’ rating on HD shares. The analyst highlighted that the company’s quarterly results were relatively in-line with estimates. The results reiterated the analyst’s belief that The Home Depot, Inc. (NYSE:HD) has set control mechanisms for profit and loss performance. In the current macroeconomic environment, Forbes sees The Home Depot, Inc. (NYSE:HD) gaining market share from competitors and managing the bottom line hand-in-hand.
Following the results, the company’s Board of Directors approved a new $15 billion share buyback program on August 18. The amount is equivalent to nearly 5% of the company’s total market capitalization.
Here’s what Ensemble Capital said about The Home Depot, Inc. (NYSE:HD) in its Q1 2022 investor letter:
“Home Depot (7.7% weight in the Fund): The demand surge for remodeling and home improvement goods sparked by shelter in place orders, remote work going mainstream, and a shortage of homes on the market to buy, ran headlong into the supply chain crisis, triggering surging prices in the products Home Depot sells. But the company has been able to pass nearly all of these increased costs on to customers, with revenue growing 37% over the past two years while gross profits, or the profits the company makes on each item they sell, increased by 35%. Even this small difference appears to be due not to inflation eating away at Home Depot’s profits, but rather be a function of the huge increase in revenue the company has been generating in low margin lumber sales.”
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Disclose. None. 10 Home Improvement Stocks to Buy Now is originally published on Insider Monkey,
