Home Depot's (HD 0.43%) share price has increased by 24.3% over the last year, and 118.4% over the last five years. Operating more than 2,200 stores in the U.S., Canada, and Mexico that average 105,000 square feet of shopping space, Home Depot has grown immensely since the first two stores opened in 1979. 

Taking a look at revenue growth and profitability, dividend sustainability, and share price valuation, we can better determine if Home Depot is a buy, hold, or sell for a long-term investment horizon.

Revenue growth and profitability

Home Depot has shown impressive revenue growth over the last five years, rising from $83.2 billion in 2015 to $108.2 billion in 2019 -- generating a 5.4% compound annual growth rate (CAGR).

The impressive revenue growth can partially be attributed to the integration of both physical and online sales, which management calls One Home Depot -- a term originally coined by the company in 2017 which involved investing $5.4 billion into e-commerce, store improvements, and enhancing the distribution system.  

house plan with working tools

Image source: Getty Images.

A 2019 Investor and Analyst Conference announced updates to the strategy which included: integrating e-commerce solutions; enhancing the stores to increase convenience and decrease shopping time; increasing delivery options; and integrating a Pro ecosystem.

Craig Menear, Home Depot's chairman, CEO, and president, stated during the conference that "we're confident that the investments we are making in the One Home Depot experience will address the evolving needs of our customers."

Home Depot Profitability

Data source: Home Depot. Chart by author.

Profit margins have been impressive alongside revenue, specifically net profit margin. Growing from 7.6% net income margin to 10.3% over the past five years gives Home Depot increasing profitability while gross profit margins have stayed relatively flat at 34% over the same time period. This gain in net profit is a reflection of the integration initiatives increasing the company's efficiency.

A growing dividend and share buybacks

Home Depot's dividend has been growing for over 10 years, with a five-year CAGR of 23.7%. Currently, the forward dividend yield is 2.4%. The company's payout ratio -- the proportion of earnings paid out as dividends -- is 54%, which leaves plenty of room for dividend growth in the future.

Total debt has increased at a 3% CAGR over the last five years, from $17.2 billion in 2015 to $29.2 billion in 2019. However, total common shares outstanding have been decreasing at a 3.3% CAGR over the same period, which has increased shareholder value from shareholder repurchases -- with over $38 billion in shares repurchased over five years and a total shareholder payback of over $56 billion in dividends and share repurchases. 

Home Depot is growing and properly valued

Shares of Home Depot are currently trading at a forward price-to-earnings ratio of 22.7, which is above Home Depot's direct competitor Lowe's (LOW -0.49%) P/E ratio of 20.4. Home Depot's price-to-sales ratio of 2.26 is above Lowe's 1.27, but Home Depot beats Lowe's on revenue growth, EBITDA growth, and earnings-per-share growth -- showing a proper valuation based on the fundamentals over Lowe's.

Home Depot's management expects growth to continue in 2020, with comparable-store sales gains forecast between 3.5% and 4% in comparison to 2019's 3.5%. Because of heavy investments into Home Depot One, operating margins are expected to be 14% rather than 2019's 15%. However, investors should see the results of the investments over the long-term.

Overall, Home Depot's growth, profitability, dividend sustainability, and share price valuation make Home Depot a good investment into 2020, and a buy at the current valuation.

Assuming the economy does not fall into a recession, Home Depot's revenue can be expected to continue the 5% CAGR -- continually benefiting shareholders with dividends and share repurchases.