Home Depot (HD 1.13%) has certainly made millionaires of shareholders, with a stock price that has more than doubled in the past five years. That does not mean it will continue on that upward trajectory indefinitely. The stock market graveyards are littered with companies that had tremendous success for decades and suddenly faced a challenge they couldn't contend with. Or others that, after years of continuous growth, have stagnated.
Will Home Depot be one of those companies that continues higher or one of the others? Let's take a closer look.
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More customers, and a fence to keep Amazon away
Home Depot has been pivoting to make its store the go-to choice for pros as part of its $11 billion One Home Depot investment program. While the recent surge in spending during the pandemic has been from do-it-yourselfers, the long-run trend is heading in the direction of people taking on fewer DIY projects.
People are spending more time at home during the pandemic, and that has in part led to a surge in the desire to own rather than rent. According to the Federal Reserve Bank of St. Louis, the homeownership rate increased from 65.4% to 68.2% from the first to the second quarter, although it ticked down in the third quarter to 67.2%. Still, it's at the highest level it has been since back in 2010. That change in attitude is a welcome sign for Home Depot since homeowners tend to spend more money on their properties compared to renters.
In the long run, Home Depot has an advantage that Amazon is going to find difficult to overcome. The type of products that it sells makes it more likely that people will want to buy in-store, or pick up there shortly after ordering online. For instance, if you need to buy a plumbing snake to unclog your toilet, you'd more likely to want to go to Home Depot than wait for Amazon to deliver it, even if you have a Prime membership. That, along with the 2,293 locations it has in operation, is likely to keep Amazon at a safe distance.
What it could mean for investors
Between Oct. 2010 and Oct. 2020, Home Depot's stock grew at a compounded annual rate of 25%. And the beginning part of that period was a time when the country was rebounding from a housing crisis. Looking forward to the next ten years, with homeownership rates at elevated levels, record-low interest rates for mortgages, and the tailwind from the coronavirus pandemic, it would be reasonable to assume shares of Home Depot will perform well.
And the company's board authorized a $15 billion share repurchase program in February 2019, of which $7.7 billion remains unspent. Due to the pandemic, the company paused the program in March. When the coronavirus has run its course, it may restart that program, and with the company in the market buying its own shares, it should be a force driving the stock price up.
So could Home Depot be a millionaire-maker stock? That depends on how many shares of the stock you buy and how long you hold on to them. For instance, if the company's stock can repeat its return from the previous 10 years, then theoretically, $10,000 invested in Home Depot's stock today would turn into $1 million in 20 years. More importantly, if you invest in this consumer discretionary stock for the long run, you should be rewarded with handsome returns.
