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Will Home Depot Hit $500 in 2022?

By Parkev Tatevosian, CFA – Jan 6, 2022 at 10:25AM

Key Points

  • Home Depot is benefiting from solid tailwinds.
  • Home Depot's revenue is growing twice as fast as its long-run rate.
  • Home Depot's stock would need to rise over 20% in 2022 to reach $500.

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Home Depot's stock rose an impressive 56% in 2021.

Home Depot (HD 0.46%) has had an incredible run since the onset of the coronavirus pandemic. Shareholders were pleasantly surprised at one of the unintended consequences of government-mandated shutdowns of non-essential businesses. 

Folks staying home more often, with fewer places to spend their money, looked to the home improvement retailer to complete projects around the home. Sales surged for Home Depot, and its stock price followed suit, rising 56% in 2021. Let's see if Home Depot can maintain that momentum in 2022 and lift its stock price to $500.

A person carrying lumber.

Image source: Getty Images.

Powerful tailwinds are boosting sales and profits at Home Depot

In the last decade, Home Depot grew revenue at a compounded annual rate of 6.9%. However, in the nine months ended on Oct. 31, Home Depot's revenue increased by 15.6% from the same time a year ago. Such is the positive impact that newly adopted consumer lifestyles have on its business. The rise in sales boosted operating income by 28.3% in that same period.

The COVID-19 pandemic made the home more important than ever. Folks are increasingly working, entertaining, learning, and exercising at home. Many folks' homes were not built for these additional uses. That's where the nearest Home Depot came in handy. 

At the onset of the pandemic, sales at Home Depot were fueled by do-it-yourself projects. People were hesitant to welcome professional contractors into their homes for more significant, complex projects. Now, as more people are vaccinated against COVID-19, they feel better about bringing professionals into their homes. As a result, professionals are spending more at Home Depot. 

Another factor driving sales at Home Depot is rising home values. If people perceive that their home is worth more, they are encouraged to spend on improvements, additions, and maintenance. That spending is viewed as an investment rather than an expense. According to the Federal Reserve Bank of St. Louis, home prices experienced record year-over-year appreciation in each month from April 2021 to October, the most recent month of data.

Rising home values and momentum from professional contractors could fuel revenue growth for Home Depot in 2022. 

Will Home Depot's stock hit $500 in 2022? 

As of this writing, Home Depot's stock is selling for $412. To reach $500 in 2022, it would have to rise by 21.3%. That might be a bit of a stretch, considering the incredible run-up it has already had and the sheer value of spending folks have allocated to home improvement since the pandemic onset. It may not be prudent to expect that kind of momentum to continue. 

That being said, Home Depot is an excellent business with a management team that has proven adept at adjusting to significant disruptions. Investors have no reason to think it won't effectively deal with decelerating revenue growth. While it's not incredibly likely to hit $500 in 2022, Home Depot's stock is still an excellent asset to long-term investors' portfolios

Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Home Depot. The Motley Fool has a disclosure policy.

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