Please ensure Javascript is enabled for purposes of website accessibility

Why Home Depot Stock Rose 15% in the First Half of 2020

By Demitri Kalogeropoulos – Jul 6, 2020 at 8:44AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The market share leader faces major growth challenges in the second half of the year.

What happened

Shareholders of Home Depot (HD -1.24%) are beating the market this year. Their stock rose 15% compared with a 4% decline in the S&P 500 through the end of June, according to data provided by S&P Global Market Intelligence.

That boost has kept the home improvement giant just ahead of rival Lowe's (LOW -0.53%), which has also outperformed the market in 2020.

A couple shopping for appliances.

Image source: Getty Images.

So what

Home Depot started 2020 on a positive note by announcing accelerating growth in its fiscal fourth quarter and avoiding the slowdown that retailers like Walmart and Target had seen. Investors were even more pleased to see the chain perform well through the initial phases of the COVID-19 pandemic. Sales gains roughly doubled from quarter to quarter even though Home Depot curtailed its hours and canceled its traditional spring selling promotions.

Now what

Home Depot is likely to see elevated demand for some time as consumers prioritize home improvement projects. Its longer-term growth is more dependent on factors like economic expansion and unemployment, which right now suggest tough selling conditions on the way.

Yet the business has demonstrated its flexibility through past crises, and investors who simply hold the stock are likely to be rewarded as Home Depot keeps winning market share and increasing direct cash returns through dividends and stock buybacks.

Demitrios Kalogeropoulos owns shares of Home Depot. The Motley Fool owns shares of and recommends Home Depot. The Motley Fool recommends Lowe's and recommends the following options: short January 2021 $210 calls on Home Depot and long January 2021 $120 calls on Home Depot. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.