Is Home Depot stock a smart investment at $335?

With its roots stretching back to 1978,  Home Depot, Inc. (NYSE: HD) has established itself as a stalwart in the home improvement industry. Over the years, its earnings trajectory has been influenced by various factors, including store expansion, comparable sales growth, profit margin dynamics, and strategic share buybacks.

The company’s commitment to enhancing shareholder value through prudent financial management has been evident, with a steady decline in shares outstanding driven by robust free cash flow utilization for buybacks.

However, despite Home Depot’s formidable market position and consistent profit margin expansion fueled by effective management practices and market dominance, recent challenges have emerged. The current housing market landscape, characterized by near-record low housing turnover, poses headwinds to the company’s sales growth and profit margin sustainability.

Against this backdrop, the recent announcement by Home Depot to acquire SRS Distribution for $18.25 billion has sparked both interest and scrutiny. This strategic move aims to expand Home Depot’s footprint in the professional customer segment and tap into new market opportunities, particularly in roofing and specialty trades.

While the acquisition presents synergistic benefits and aligns with Home Depot’s strategic focus on professional customers, concerns linger regarding its impact on the company’s balance sheet and the suspension of share buybacks to manage increased leverage.

Against this backdrop of financial intricacies and strategic maneuvering, the question arises: What lies ahead for Home Depot’s stock? To answer that, let’s delve into the charts to discern the signals shaping the trajectory of Home Depot’s stock.

If we look at Home Depot’s long-term weekly charts, we’ll find a stock that has mostly been range-bound since the start of 2022. The stock made a high above $420 in December 2021 and by June 2022 fell below $265. Since then, the stock has mostly traded in the $275-$400 range.

HD chart by TradingView

For investors and long-term shareholders, this might be frustrating as the stock hasn’t delivered any price returns for almost 3 years now. However, between January 2021 and January 2024, Home Depot’s annual sales have increased from $132.11 billion to $152.67 billion and net income has increased from $12.87 billion to $15.14 billion, which means the company is doing well financially.

On short-term hourly charts, Home Depot’s stock seems extremely weak. After testing resistance near $400, the stock started falling from March 21 and recently broke below its near-term support at $335.72.

HD chart by TradingView

However, despite falling below $330 on April 25th, Home Depot’s stock has again managed to climb back to $335 levels, suggesting buying happening at these levels. At this juncture, it seems the bears have exhausted their move and the stock is once again in buy territory.

Short-term traders, who are bullish on the stock can buy it at the current level keeping a stop loss a few cents below $320, the next immediate support for the stock. Investors can also start accumulating the stock at the current level. As long as the stock doesn’t fall below $275, it will do well in the long run.

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