With Housing Recovering, Is The Home Depot, Inc. (HD) A Buy?

We can also compare The Home Depot, Inc. (NYSE:HD) to Lumber Liquidators Holdings Inc (NYSE:LL) and Sherwin-Williams Company (NYSE:SHW) since these companies sell flooring products and paint, respectively, which would also be in demand by home improvers. Sherwin-Williams trades at 28 times trailing earnings, but its revenue has been up and margins have been improving. Expectations of continued growth result in a forward P/E of 18. It’s also interesting that in general the company has relatively limited exposure to broader market indices with a beta of 0.6. Lumber Liquidators has risen 167% in the last year as it has been a huge beneficiary of the recovering housing market, though 19% of the outstanding shares are held short. It has the highest trailing P/E of the stocks we’ve discussed at 41, but revenue and earnings were both up over 20% in the fourth quarter of 2012 versus a year earlier.

With earnings growth higher at these two companies than the home improvement stores, they may be worth a closer look to see if they can sustain their growth enough to justify those higher valuations. In the case of The Home Depot, Inc. (NYSE:HD) the repurchasing program and same-store strength suggest that the company can sustain double-digit earnings growth rates for some time and if Sherwin-Williams and Lumber Liquidators don’t check out it could qualify as a “growth at a reasonable price” stock.

Disclosure: I own no shares of any stocks mentioned in this article.