The Home Depot, Inc. (NYSE:HD) has built one of the strongest businesses in the home improvement industry. Its advantage is not simply the number of stores it operates. Over the years, the company has built a much broader ecosystem around professional contractors, suppliers, distribution, installation services, and delivery.
That advantage is becoming more important as Home Depot pushes further into the professional market. The acquisitions of SRS Distribution and GMS have expanded its reach among contractors, remodelers, homebuilders, and commercial customers. At the end of fiscal 2026’s second quarter, the company had 2,364 retail stores and more than 1,340 SRS locations. Management said 90% of its stores had closed an SRS-facilitated sale over the previous 12 months.
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A Strong Moat in a Difficult Industry
The Home Depot, Inc. is operating in a tough housing environment. High mortgage rates have kept homeowners from moving, while the lack of housing turnover has also reduced spending on larger renovation projects. Management said housing turnover has stayed around 3% of the housing stock for four years, a historically low level.
That has not stopped customers from spending altogether. Smaller repair and maintenance projects have continued to provide a steady source of demand. Home Depot’s second-quarter results reflected that resilience. Sales increased 5.7% year over year to $47.9 billion, while comparable sales rose 1.7%. U.S. comparable sales increased 1.3%. Adjusted EPS also climbed to $4.92 from $4.68 a year earlier.
Scale is a big reason the company can hold up in a weaker environment. A smaller competitor can open stores, but it is much harder to replicate Home Depot’s combination of physical locations, distribution infrastructure, professional relationships, installation services, and digital capabilities. The SRS and GMS deals add to that advantage. They give the company access to more customers and products while making the company a more useful one-stop supplier for professional customers.
Dividend is a Meaningful Part of the Return
The dividend is another reason investors continue to pay attention to Home Depot. The company currently pays $2.33 per share each quarter, or about $9.32 annually. It has now paid a cash dividend for 158 consecutive quarters. With the stock recently trading around $282, the dividend yield is roughly 3.2%. That is worth noting because Home Depot’s yield has generally been lower in recent years. Historical data puts the yield at around 2.3% in fiscal 2025 and 2.5% in fiscal 2026.
The trade-off is that dividend growth has slowed. The company raised the payout only modestly in 2026, while it expects adjusted EPS to be roughly flat to 4% higher this year. Investors should therefore view the dividend primarily as a source of income rather than expect rapid growth in the payout.
Home Depot’s Valuation Looks More Reasonable
Home Depot’s valuation has also come down from the levels seen in recent years. The stock trades at roughly 21.4 times trailing earnings and 20.4 times forward earnings. That one-point difference between the trailing and forward P/E is relatively small. It suggests that earnings are expected to improve, but the market is not expecting a major jump.
The current multiples translate into an earnings yield of about 4.7% based on trailing earnings and roughly 4.9% based on forward earnings. So investors are paying about $20 for every $1 of expected earnings. That is not a bargain, but it looks much more reasonable than Home Depot’s recent valuation history. The stock traded at a forward P/E of about 25.2x in fiscal 2026, 26.4x in fiscal 2025, and 23.5x in fiscal 2024. In fiscal 2023, the multiple was closer to 18.9x. The decline tells an important part of the story. Home Depot is no longer receiving the same valuation premium it commanded when housing activity and consumer spending were stronger.
The question now is what happens to earnings when the housing market eventually improves. Home Depot is maintaining its fiscal 2026 outlook for 2.5%-4.5% sales growth and up to 4% adjusted EPS growth. Those are not particularly strong numbers, but they also do not reflect what the business could look like if housing turnover starts to recover. Years of low housing turnover have left plenty of homes in need of repairs, upgrades, and remodeling. A pickup in housing activity could therefore provide a meaningful tailwind for Home Depot.
At around 20x forward earnings, the stock is not obviously cheap. But compared with the 23x-26x forward multiples investors were willing to pay in several recent years, the valuation looks far less demanding. For a company with Home Depot’s scale, brand recognition, professional customer base, and exposure to an aging U.S. housing stock, that makes the current price more interesting. The upside case becomes stronger if earnings growth accelerates as housing conditions improve. But how does Home Depot compare with its peers? This comparison reveals which stock may offer the better opportunity.
Conclusion
The Home Depot, Inc. still has the characteristics of a high-quality business: a large and difficult-to-replicate operating network, strong relationships with professional customers and a long history of returning cash to shareholders. The near-term environment remains challenging, and earnings growth is unlikely to be spectacular while housing turnover stays weak.
However, the stock’s valuation has come down, while the dividend yield has moved above 3%. That combination makes Home Depot more interesting than it was when the market was assigning it a much higher earnings multiple. If housing activity eventually picks up, the company could have room for both stronger earnings and a better valuation.
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This article is originally published at Insider Monkey.
