While discussing the Dow Jones Industrial Average’s third-quarter laggards on October 1, Jim Cramer addressed The Home Depot, Inc. (NYSE:HD). He acknowledged the stock’s disappointing performance in his Charitable Trust and said:
In the end, I think the best lessons from the third quarter came from the 30 stocks in the Dow Jones Industrial Average, which finished down 2.7%… Dow’s losers, worst for last… There’s two that are such name brand companies, I just can’t bring myself to throw them away: Home Depot, down 19%, a bad pick for my Charitable Trust, and McDonald’s, off 15%. Now, Home Depot’s hostage to interest rates, which had one of the most vicious increases in a quarter that I can ever recall. No relief to the depot until rates go down.
In an August episode of Squawk on the Street, he said that he didn’t think the stock was expensive enough to be avoided.
Smaller Projects and Professional Customers Support Sales
The Home Depot, Inc. delivered second-quarter results above management’s expectations as customers continued spending on smaller home improvement projects. Sales increased 5.7% year-over-year to approximately $47.9 billion, while comparable sales rose 1.7%, including 1.3% growth in the United States. Adjusted diluted EPS increased to $4.92 from $4.68.
Its professional-customer business also showed progress. Management said Pro comparable sales were positive and outperformed the do-it-yourself business. The integration of SRS into Home Depot’s sales channels is creating additional opportunities. Approximately 90% of stores had completed a sale through SRS during the preceding 12 months. Meanwhile, online comparable sales grew 11%, marking a fifth consecutive quarter of double-digit growth.
Home Depot maintained its fiscal 2026 forecast for total sales growth of approximately 2.5% to 4.5% and comparable sales growth ranging from flat to 2%. Adjusted EPS was expected to increase between approximately zero and 4%.
Housing Affordability and Cost Pressures
The housing backdrop remains the main obstacle. On the earnings call, management said affordability and consumer uncertainty continued to weigh on larger projects. CFO Richard McPhail described housing turnover as historically low relative to the housing stock and said there was no sign of a turning point at that time. The composition of quarterly sales growth should also be mentioned. Comparable transactions declined 1%, while the average comparable ticket increased 2.8%. Higher spending per transaction therefore supported growth despite fewer transactions.
Cost pressures add another consideration. The Home Depot, Inc.’s annual guidance incorporates IEEPA tariff refunds that management expects to partially offset unplanned fuel, energy and other product input costs. Maintaining the earnings outlook consequently involves managing expenses as well as sustaining sales.
The company traded at approximately 19x forward earnings, compared with 14.6x for direct rival Lowe’s Companies, Inc. (NYSE:LOW). That roughly 27% premium leaves investors paying more for Home Depot’s expected earnings despite the housing pressures affecting its business. Its professional-customer expansion offers one potential justification, but the share-price decline alone does not establish a bargain relative to Lowe’s. We did, however, discuss which stock is better to buy.
Ownership Holds Broadly Steady, With Few Shares Sold Short
According to Insider Monkey’s database, 98 hedge funds held The Home Depot, Inc. in Q2, down slightly from 100 in Q1. The small change suggests participation among tracked funds was broadly stable. Among the 1000+ hedge funds tracked by Insider Monkey, Fisher Asset Management held the largest stake in the company with 10.36 million shares. Short interest represents 1.18% of the public float as of mid-September, showing limited bearish positioning through short sales.
Home Depot’s smaller-project demand and progress with professional customers offer support while housing activity remains subdued. Cramer’s interest-rate concerns remain relevant, with the premium to Lowe’s adding a separate hurdle for the stock.
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