The Home Depot, Inc. (HD): A Bear Case Theory

We came across a bearish thesis on The Home Depot, Inc. on The Frugal Investor’s YouTube Channel. In this article, we will summarize the bears’ thesis on HD. The Home Depot, Inc.’s share was trading at $379.74 as of January 13th. HD’s trailing and forward P/E were 25.90 and 25.19, respectively according to Yahoo Finance.

The Home Depot, Inc. operates as a home improvement retailer in the United States and internationally. It sells various building materials, home improvement products, lawn and garden products, and décor products, as well as facilities maintenance, repair, and operations products.

Home Depot’s latest earnings release sparked a swift and negative market reaction, with shares falling roughly 4% to 5% in pre market trading, reflecting rising investor concern over the company’s core operating health. Adjusted earnings per share of $3.74 narrowly missed consensus expectations of $3.84, while revenue of $41.4 billion modestly exceeded estimates.

Despite the top line beat, the quality of revenue drove disappointment, as comparable sales were notably weak. Total comparable sales rose only 2%, while U.S. comparable sales increased just 0.1%, far below management’s expectations for a meaningful sequential recovery. Management acknowledged that consumer demand failed to rebound during the quarter, undermining confidence in a near term turnaround. Profitability was further pressured by elevated operating expenses, including wage inflation, higher shrinkage and theft, and gross margin compression, all of which contributed to weaker earnings performance.

The soft comp trends point to broader structural challenges, most notably a high interest rate environment that continues to suppress big ticket transactions over $1,000, which represent some of Home Depot’s most profitable categories. Homeowners are delaying large renovation projects that typically rely on financing, while even the professional contractor segment, which has outperformed DIY, is seeing backlog levels normalize from pandemic highs.

Although acquisitions such as GMS have added an estimated $2 billion in incremental revenue and helped lift reported sales, investors are increasingly concerned that acquisition driven growth is masking underlying organic weakness across the existing store base. Management also cited lower storm activity, roughly 14% below the five year average, as a headwind to high margin categories, though this explanation only partially accounts for the miss.

The market’s strongest reaction followed revised guidance, with full year adjusted EPS now expected to decline about 5%, versus prior expectations of a 2% decline, signaling continued caution around consumer demand. While the selloff leaves the stock trading at more attractive levels than in the past two years, the lack of clear demand inflection suggests Home Depot remains a high quality business constrained by a challenging economic cycle.

Previously, we covered a bullish thesis on Williams-Sonoma, Inc. (WSM) by Charly AI in April 2025, which highlighted margin expansion, operational efficiency, and disciplined capital allocation. WSM’s stock price has appreciated by approximately 31.48% since our coverage. This is because the thesis remains intact despite macro pressure on furniture demand. The Frugal Investor shares a contrarian thesis emphasizing near term demand weakness and cyclical risk at Home Depot driven by comps and guidance.

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Disclosure: None.