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Motley Fool Staff
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November 25, 2009
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In a new Motley Fool series, we pit two stocks against each other on five criteria to determine the better buy.
Today's matchup is Home Depot (NYSE: HD ) vs. Lowe's (NYSE: LOW ) . Using five short-of-scientific-but-carefully chosen criteria, let's determine which is the better buy according to the numbers:
Round 1: Cheapness
Advantage: Lowe's Companies. Cheapness is determined by P/E ratio. The lower the better. Be careful of earnings near zero that skew the ratio, one-time gains and losses, and pasts that aren’t indicative of futures (the more dynamic the industry, the more this is true).
Round 2: Growth
Advantage: Lowe's Companies. Growth is determined by Wall Street analysts’ 5-year projections. The caution: it’s been shown that Wall Street is highly optimistic.
Round 3: Operations
Advantage: Lowe's Companies. Net margins shows the percentage of revenue that hits the bottom line. The more similar the business models, the more relevant the comparison.
Round 4: Balance sheet
Advantage: Lowe's Companies. As with net margins, the debt to capital ratio is most relevant in comparing companies in similar industries. In this battle we give the nod to the lower-debt company, but attention should also be paid to the cost of debt, interest coverage ratios, and the stability of the business (the more stable a company’s operations, the more debt it can safely carry).
Round 5: CAPS rating
Advantage: Lowe's Companies. A company’s CAPS rating is our community’s opinion of the stock. Lowe's has a slightly greater numerical CAPS rating than Home Depot (even though they have the same number of stars). You can get more information on your stocks -- and our community’s opinions of those stocks -- by clicking over to CAPS area.
Each of these five rankings need more context -- like, how these companies stack up against key competitors such as Sherwin-Williams Company (NYSE: SHW ) and Builders FirstSource (Nasdaq: BLDR ) . But these basic numbers suggest that Lowe's Companies is a better buy. What do you think? Let us know in the comments section below.