Here are the highlights for long-term shareholders.
Continue Reading Below
1. Blending digital and physical retail
Home Depot's online operations help to drive in-store traffic, including when items are picked up at -- or, if need be, returned to -- its stores. Rather than disparate businesses, the company sees its e-commerce and in-store operations as two parts of a whole, with each reinforcing the other. This "One Home Depot" philosophy underlies its omnichannel strategy, and it's a significant competitive advantage over online-only rivals, as well as less tech-savvy traditional retailers.
2. Hurricanes boost sales
While many businesses see their operations damaged by hurricanes and their aftermath, Home Depot tends to experience an uptick in demand for its goods and services as people rebuild after the destruction. As such, an investment in Home Depot could help offset some of the potential risks that climate change may pose to your portfolio.
3. But it's more than just storms that are driving results
Home Depot is benefiting from both an increasing number of transactions (up 2.7%) and a higher average transaction size (up 5.1%). Big-ticket sales, which the company defines as transactions over $900, jumped 12.1% and now represent approximately 22% of Home Depot's U.S. sales. This segment benefited from strong sales of appliances, floorings, and several categories geared toward professional customers.
4. Top-tier comp growth
With the previously mentioned factors fueling its growth, Home Depot's comparable-store sales increases are some of the best in retail. Moreover, they're coming at a time when many other retailers are struggling with stagnant -- and even declining -- comps, making Home Depot's performance all the more impressive.
5. Expanding margins
Home Depot is becoming more profitable as it expands its sales base. The company is reining in costs and prioritizing improvements to its existing stores rather than opening new locations. This, in turn, is leading to margin expansion, higher returns on capital, and greater free cash flow production.
6. Capital returns
Home Depot is passing a hefty portion of its free cash flow on to shareholders through stock buybacks and a steadily rising dividend payout -- both of which are helping to support its stock price and boost investor returns.
7. The future looks bright
Rising home prices, an aging base of existing homes, and low inventory of new homes for sale all tend to encourage people to invest in home repairs and renovations. In addition, many of the housing products and repair services that Home Depot offers are in greater demand following the devastation wrought by recent megastorms Harvey and Irma. Together, these factors point toward continued strong sales for Home Depot in the quarters ahead.
10 stocks we like better than Home DepotWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Home Depot wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of November 6, 2017
Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has the following options: short January 2018 $170 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Home Depot. The Motley Fool has a disclosure policy.