The coronavirus pandemic led many companies to direct their employees to work remotely. Millions of workers accustomed to showing up each day at their offices had to make a major adjustment.
Investors will want to know how Home Depot (HD 0.74%) is benefiting from this significant change in people's lifestyles. Here are two specific ways that the company is gaining from the shift to remote working:
Home Depot's revenue reached $38 billion in the most recent quarter. Image source: Home Depot.
1. People working from home needed a dedicated workspace
Some people already had their home offices. However, many weren't so lucky. These people needed to modify existing spaces or add home additions to accommodate the change in working needs.
Moreover, with companies like Facebook, Twitter, and Microsoft giving employees the option to work from home longer term, and perhaps even permanently, people felt more inclined to make capital investments to add a home office.
Whether adding an office or modifying an existing space, Home Depot benefited as customers shop for the necessary supplies. This trend can partly explain the company's remarkable results in the most recent quarter in which revenue increased by 23.4% to reach $38 billion.
A rise in home ownership is a boon for Home Depot. Image source: Home Depot.
2. Working remotely is freeing up people to live in more affordable cities
Interestingly, among those with the luxury of working remotely many are likely on the higher end of the pay scale and some are working in a high cost-of-living city. With the prevalence of remote working, some are taking the opportunity to move to a city with a lower cost of living. For example, tech workers in San Francisco are finding that housing costs in nearby Sacramento are one-third of what they are in San Francisco. This could partly explain the surge in homeownership rates in the U.S in the recent quarter.
According to the Federal Reserve Bank of St. Louis, home-ownership rates spiked in the second quarter of 2020 to 68.2% compared to the first-quarter rate of 65.3%. They are now at levels not seen since the housing crash of 2007. Admittedly, record-low interest rates had something to do with this as well as people looking for backyards for their children to play in. However, the trend toward working remotely has played an important role in stepping up the sale of homes.
While adding a home office will give a short-term boost to Home Depot revenue and profits, the increasing rate of home ownership is a longer-lasting benefit. That's because people who own a home rather than rent will spend more on maintaining their properties.
Shares of Home Depot are already up 30% year to date. The increase has led this consumer discretionary stock to be trading at a price-to-sales ratio of 2.6 and a price-to-earnings ratio of 26. Both are the highest levels the company has traded at in the last decade.
The market might be anticipating that the coronavirus pandemic caused shifts in the economy that will make Home Depot a better long-term investment. Regardless of the share price, people spending more time at home and getting more use out of their homes with the addition of a home office are likely to benefit Home Depot in the long run.
