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Better Buy: Home Depot or Lowe's?

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:

 

Factor

The Home Depot

Lowe's Companies

Cheapness

(P/E ratio)

20.5

18.7

Growth

(5-year growth rate)

-2.00

5.44

Operations

(net margin %)

3.5

3.7

Balance Sheet

(debt/equity ratio)

.60

.26

CAPS Rating

(scale of 1 to 5 stars)

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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.

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No individual person selected the stocks in this article, so there is no author to disclose an interest in them. Since this article was automatically generated by identifying the stocks loved both by the CAPS community and by buyers in today’s market, it is possible that Motley Fool personnel (and even The Motley Fool itself, through our Million Dollar Portfolio, Motley Fool Pro, and Ready Made Millionaire services), have positions in these stocks. We thought you'd like to know that. You can learn more about The Motley Fool’s disclosure policy here.


Comments from our Foolish Readers

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  • Report this Comment On November 25, 2009, at 4:34 PM, TTexas wrote:

    Certainly does not look right to me. Home Depot has always been a better company than Lowes. Contractors and DIYers both prefer to shop at Lowes and the only customers that have chosen Lowes over Home Depot are women. Lowes was late getting into the home center business and has always copied Home Depot, so why not buy the leader and inovater in this industry.............

  • Report this Comment On November 25, 2009, at 4:43 PM, djkumquat wrote:

    ttexas, you can have HD. not that i'm looking to buy either at the moment, but if so, i'd take LOW for sure.

  • Report this Comment On November 25, 2009, at 4:54 PM, grumpyhen wrote:

    Hubs and I have owned both at various times. HD helped us put 2 kids through private colleges. Bought LOW after Nardelli thumbed his nose and looted HD here in Atlanta. Ttexas; a LOT of financial decisions are, indeed, made by women. Get over it and we have spent a lot of money at LOW although we have to go further in the ATL. Their stuff and staff are Bye ya'll. superior. Both companies need to train their sparse personnel more wisely. "Inovate" is spelled Innovate,

  • Report this Comment On November 26, 2009, at 12:39 AM, Fool wrote:

    In the state of CT, Lowe's used to have 6 VERY profitable stores. Now they have fallen victim to the same vice as HD....they are cannibalizing their own profits by opening stores right on top of each other and cutting sales staff in existing stores. I have a small holding in LOW, but will not increase unitl they show better management decisions at the top.

  • Report this Comment On November 26, 2009, at 12:55 AM, topsecret09 wrote:

    Neither... Way better companies out there than these two. Home Depot still has very bad cusomer service problems here In California. Two Red Thumbs TS

  • Report this Comment On November 26, 2009, at 2:25 PM, bullkc wrote:

    Prefer Low's. HD is awful with their customer service. Anytime we go there to do a purchase, had to stay in line for hours, it is very frustrating. Low's also had a better quality merchandise.

  • Report this Comment On November 27, 2009, at 2:41 AM, danmiddleton999 wrote:

    The HD stores in St Louis where I shop have significantly improved their staff and customer service. A few years ago they were really bad and Lowes picked up a lot of business because of this. The statistics are also reflecting past bad times and the costs of restructuring. I have friends who won't go in a HD because of past experiences.

    But a stock purchase should be about future prospects, so with that in mind I can see HD as a possible big gainer as the word spreads that it is an improved store. With twice as many stores a positive swell could make a significant difference in future numbers.

  • Report this Comment On November 27, 2009, at 10:01 AM, lonster31 wrote:

    TTexas wrote: Lowes was late getting into the home center business and has always copied Home Depot

    Check your facts....open since...LOW = 194X, HD = 198X

  • Report this Comment On December 01, 2009, at 11:06 AM, Brent299 wrote:

    I agree with part of article and disagree. One, HD owns like 80 percent of land stores sit on. These values in balance sheet represent price paid at the time. Land values have been sliced in half last couples of years but are still way more valued than balance sheet states. HD correct does not need to grow as fast but this is less hit to balance sheet but also less growth. HD is taking market share from lowes look at last two quarters. HD has a higher dividend for long term invester. I can see were p/e comes in lowes favor but if orange is taking market share this could be very wrong. Frank Blank has mad huge improvements to customer service and employee morale a win / win!

  • Report this Comment On December 04, 2009, at 12:50 PM, jkong69 wrote:

    Lowe's store is cleaner, brighter, maybe i like the color blue.. more orgainzed... I am sure in 4-5 yrs Lowes will be #1 in home improvement business.

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Related Tickers

2/8/2012 4:02 PM
LOW $26.88 Down -0.08 -0.30%
Lowe's Companies,… CAPS Rating: ***
HD $45.17 Down -0.29 -0.64%
The Home Depot, In… CAPS Rating: ***
SHW $98.96 Up +0.48 +0.49%
Sherwin-Williams CAPS Rating: ***
BLDR $3.10 Up +0.02 +0.65%
Builders FirstSour… CAPS Rating: ***

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