A couple of years ago, I used to joke about trips to Home Depot (NYSE: HD ) : "Hopefully there will be a contractor shopping there who can answer my questions." But if you've visited Home Depot lately, you've probably noticed changes, such as more helpful sales associates, a wider selection of products, and streamlined check-out. Do these changes and more make Home Depot an investment you should consider?
A solid foundation
I think so. Home Depot, the industry leader in home improvement, is growing at a time when both the economy and the housing market are in a slump. In January 2009, during the depths of the crisis, Home Depot's revenue growth was negative 17.28%, but it has since steadily risen (to 4.39%). As an investment, Home Depot has outperformed the S&P 500 over the past two years, and from Q2 to Q3 2011, it increased its quarterly dividend by 16%.
Over the past 30 years, Home Depot has been building the following strengths, and these strengths have it well-positioned for the future:
- It is the most-recognized brand when it comes to home improvement.
- It has more than 2,200 locations worldwide, including in all 50 states, Canada, Mexico, and China.
- It has a renewed focus on its core value of providing an exceptional customer experience.
- It has made logistical improvements that deliver the right products to the right stores at the right time.
Opportunities for dominance
I've owned a home for about seven years and am usually working on some sort of home improvement project a couple of weekends a month. Home Depot has definitely seen its fair share of business from me, but so have its competitors. The following are some opportunities that would help Home Depot dominate for years (and convert me to an exclusive customer):
- Expand hiring knowledgeable sales associates. I should be able to walk into any Home Depot and be confident that I'll walk out with a solution.
- Improve the quality of certain products. I buy cabinetry from Lowe's, paint from Sherwin-Williams, and hand tools and appliances from Sears simply because they have better products.
- Provide cutting-edge online solutions. Less than 1% of Home Depot's revenues come from online, and I'd love to see something creative to boost them. Imagine turning on your mobile device camera and having an online Home Depot associate provide recommendations for your project.
- Continue international growth. With 274 international locations, Home Depot definitely has the experience of setting up shop abroad. Home Depot should target more countries and definitely expand its presence in China beyond seven stores.
You don't want to miss out on Home Depot when home improvement makes its triumphant return. To keep tabs on the stock, simply add Home Depot to your watchlist.
For another fast-growing big-box retailer with massive potential, click here to get the details on The Motley Fool's Top Stock for 2012, called "the Costco of Latin America."