Home Depot Keeps Building

It wasn't easy following Motley Fool Inside Value pick Home Depot's (NYSE: HD ) conference call this morning. I'm a numbers guy, and I'm not a morning person. Consequently, management's long-winded yakkity-yak about countertop colors made my abandoned FreeCell game look pretty appealing. But in spite of all that talk about fine leathers with colors inspired by the rivers of the world, I'm still a fan of this company.

Home Depot's sales were up nearly 16% this quarter, atop a 5.5% same-store sales increase. Gross margins worsened slightly, but overall operating margins were stronger, and operating income rose a healthy 23%. The average ticket was up nearly 6%, to a record $57.20; transactions grew more than 4%, and the company seems to have gained share in the appliance retail market.

Where a lot of analysts see potential trouble with Home Depot, I see opportunity.

Does Home Depot trail rival Lowe's (NYSE: LOW ) in terms of customer service? Judging by all the Fools I talk to, I'd say "yes." But it doesn't seem to be killing the business, and there's always the possibility of improvement. Furthermore, introducing lower-cost (or higher-value) products from foreign manufacturers like LG and Techtronic (Nasdaq: TTNDY.PK ) -- the company behind brands like Ryobi and Dirt Devil -- should help as well.

And what about this expansion into services and building/MRO supply? Won't that lower margins? Maybe, but I think more and more Baby Boomers will transition from do-it-yourself to do-it-for-me, and Home Depot seems to be ready. Building supply is a highly fragmented market just waiting for consolidation. What's more, I wouldn't underestimate the value of the strong market position that Home Depot is building in water infrastructure -- an area that I believe could be increasingly important by the end of the decade.

As long as Home Depot keeps delivering the goods in terms of cash flow, I don't really mind if Wall Street wants to keep building a wall of worry around the stock. That just means cheaper shares for me in the short run. After all, how many of the people now predicting doom for Home Depot ever expected the company to get this far?

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).

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