Better Stock: Home Depot (HD) vs. Sherwin-Williams (SHW)

MarketsMotley Fool

Home Depot (NYSE: HD) and Sherwin-Williams (NYSE: SHW) can help you improve the value of your home. But they may be even better at helping you to increase the value of your stock portfolio.

With their shares surging 200% and 158%, respectively, over the past five years, Home Depot and Sherwin-William have created fortunes for their investors. But which of these home-improvement titans is the stronger investment opportunity today? Let's find out.

Continue Reading Below

Financial strength

Home Depot and Sherwin-Williams are both excellent businesses. But let's take a look at how they stack up in regard to some key financial metrics.

With $3 billion more cash in its coffers, Home Depot has a far stronger balance sheet than Sherwin-Williams. It also generates 8 times the operating profits and 10 times the operating cash flow. This gives Home Depot the edge in terms of financial fortitude.

Advantage: Home Depot.


Sherwin-Williams' revenue growth -- fueled by its blockbuster acquisition of rival Valspar -- has exceeded that of Home Depot in recent years. The paint king has also enjoyed larger increases in operating and free cash flow production.

Analysts expect Sherwin-Williams' earnings per share to rise by more than 18% annually over the next half-decade, as it works to fully integrate Valspar into its operations. During this same time, Home Depot's EPS is projected to rise by about 15% annually, driven by its omnichannel and margin expansion initiatives.

With its recent past -- and, more importantly, expected future -- growth exceeding that of its larger rival, Sherwin-Williams has the edge here.

Advantage: Sherwin-Williams.


No better-buy discussion should take place without a look at valuation. Let's check out some key value metrics for Home Depot and Sherwin-Williams, including price-to-earnings (P/E) and price-to-earnings-to-growth (PEG) ratios.

On all three metrics, Sherwin-Williams' stock is considerably less expensive than Home Depot's. This is particularly true when we factor in Sherwin-Williams' higher expected earnings growth rate; its PEG ratio is more than 33% lower than that of Home Depot. Thus, the paint king's shares are the better bargain.

Advantage: Sherwin-Williams.

The better buy is...

Home Depot is a cash-generating machine, but with its superior growth prospects and more attractively priced stock, Sherwin-Williams is the better buy today.

10 stocks we like better than Sherwin-WilliamsWhen 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 Sherwin-Williams 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 January 2, 2018

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has the following options: short May 2018 $175 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Home Depot and Sherwin-Williams. The Motley Fool has a disclosure policy.