The sector of economic activity linked to real estate in the United States is going through a difficult period due to the increase in interest rates in recent months, which is negatively affecting the demand for new homes.
Despite this challenging environment, Home Depot (HD) reported results above expectations in the third quarter of 2018, proving that the company is an exceptionally solid alternative in the sector. A look at the quarter numbers and the main price levels to follow closely in the mid-term shares of Home Depot.
Home Depot’s sales during the third quarter of 2018 amounted to $2.63 billion dollars, a growth rate of 5.1% compared to the same quarter in 2017. The figure exceeded analysts’ forecasts by 60 million dollars. The company opened 3 new stores during the period, ending the quarter with a total of 2,286 existing stores. Sales at comparable stores increased by 4.8% compared to the third quarter of 2017.
Not only the sales growth was favorable during the last quarter, but the profit margins were also firm. The gross profit margin increased by 20 basis points, reaching 34.8% of sales. The operating margin remained stable, at levels of 14.7% on sales. Home Depot reported earnings per share of $2.51 per unit, an increase of 36.4% versus $1.84 per share in the third quarter of 2017 and exceeding analysts’ forecasts by $0.26 per share.
Since the beginning of the year 2017, the shares of Home Depot showed a clear upward trend, which marked maximums in the area of $215 per unit in September 2018. Then, the stock suffered a strong downward adjustment in the wake of generalized weakness in the disappointing stock markets and economic data in the real estate sector.
A bet on Home Depot in times of weakness in the real estate sector necessarily implies assuming a considerable degree of risk. In the event that the growth of economic data in the sector continues to be unfavorable, this will surely put downward pressure on the price of Home Depot shares.
However, the company has demonstrated its long-term ability to avoid broad sell off, which speaks highly of the soundness of its fundamentals and the effectiveness of its management team.
In conclusion, the shares of Home Depot can be an interesting alternative for the investor that seeks to bet against the generalized trend of the sector, buying a solid business and with a reasonable valuation.