By all accounts, Home Depot (HD -0.31%) had a remarkable 2020. It took 19 years since its founding for Home Depot to reach $20 billion in revenue, but that's exactly by how much sales grew in 2020 alone. Consumers, infused with multiple sources of government stimulus money along with an unusually limited number of options to spend it, turned their attention to home improvement projects.
Now, as the COVID-19 vaccination campaign gains traction in the U.S. and states allow more businesses to reopen, people have more options for spending. And after staying indoors for an extended period of time, there may be pent-up demand for activities outside of the home. As a result, it would be difficult for Home Depot to match last year's torrid sales pace in fiscal 2021.
However, there is one trend that should act as a tailwind for Home Depot this year.
Image source: Home Depot.
Folks are feeling comfortable letting professionals in their homes again
In 2020, home improvement projects that required professional expertise lagged behind do-it-yourself (DIY) projects. The former needed professionals coming over to people's homes, and understandably, people were hesitant to allow workers and handymen in for most part of last year. Yet as the year progressed, people felt increasingly comfortable hiring professional help. During its fourth-quarter conference call, CEO Craig Menear said, "We've seen an acceleration of the pro business from quarter to quarter."
Interestingly, overall revenue increased by 25.1% in the most recent quarter for Home Depot, while its pro business grew by double digits. While that segment of the business is accelerating, it is still behind the rest of the businesses. And if you zoom in further, it's the sales to larger professional customers that are growing slower. That makes sense given that folks were more comfortable allowing a single plumber, or electrician, into their home versus an entire team.
However, with millions getting vaccinated daily, the hesitancy to allow entire teams of professionals into homes should decrease. If this trend continues through 2021, it would be a tailwind for Home Depot. Like other areas of our lives that have been delayed because of COVID-19, there could be pent-up demand for projects requiring professional help. Whether it be a kitchen remodel or a bathroom upgrade, projects that necessitate professional help tend to be larger and require more spending.
What this could mean for investors
Admittedly, Home Depot is facing tough comparisons for 2021. For example, DIY segment sales are expected to drop from 2020 levels. However, pent-up demand for professionally assisted home improvement projects could help offset some of those expected declines. This could result in flat or very little revenue growth for Home Depot this year.
But even if sales were to remain flat, it shouldn't be such a bad thing coming off from such an extraordinary year that was 2020. Looking out over the longer run, Home Depot grew revenue at a compound annual rate of 6.9% during the last decade. That's roughly the rate that investors can expect over the next several years. And most importantly, that was enough to help Home Depot grow earnings per share at a CAGR of 19.5% during the same period. Investors looking for a quality stock they can hold for the long term can add Home Depot to their list.
