Can Home Depot Stock Return To Pre-Inflation Shock Highs?

Home Depot stock (NYSE: HD), the world’s largest home improvement retailer, currently trades at $318 per share, around 24% below its level of $416 seen on December 7, 2021 (pre-inflation shock high), and has the potential for sizable gains. HD saw its stock trading at around $267 at the end of September 2022, when the Fed kept increasing rates, and now remains 19% above that level. In comparison, the S&P 500 gained about 21% during this period. The company’s stock benefited from the growth in the housing market after having seen some softness at the beginning of the year. The Federal Reserve has aggressively raised interest rates since 2022 to fight inflation. Consequently, this has translated to higher mortgage rates, suppressing home sales last year. But even with interest rates still high (6.81% in July’s first week compared to 6.4% in March 2023 and only 4.5% in April 2022 last year), home prices are now gaining again. Home prices grew 0.1% year-over-year (y-o-y) in May 2023. It is worth mentioning that HD, with more than 2300 locations, generates more sales from professional contractors than its rival Lowe’s does, and that diversity is a big win for the company.

Returning to the pre-inflation shock level means that Home Depot will have to gain about 31% from here. While it has the potential to recover to those levels, we estimate Home Depot’s Valuation to be around $317 per share, almost in line with the current market price. Our detailed analysis of Home Depot’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022 and compares these trends to the stock’s performance during the 2008 recession.