Home Depot (HD -1.08%) has been one of the market's best stocks for a long time, delivering monster returns for its shareholders over the years. Even accounting for the stock's 30% year-to-date decline, shareholders enjoyed a phenomenal gain of 350% over the past decade.

Stocks with exposure to housing and home improvement dropped significantly this year as investors consider the impacts of rising mortgage rates and a slowdown in home sales. But that makes this a great time to go hunting for the next Home Depot -- a stock that can do in the decade ahead what that stock did in the last one. These three beaten-down home improvement-related stocks all have the potential to do just that.

Two men measuring a piece of wood to cut in driveway.

Image source: Getty Images

1. Floor & Decor

If you want to find "the next Home Depot," looking at a company being run by a former Home Depot executive could be a good place to start, and that's what you have in Floor & Decor (FND -2.86%). Tom Taylor, CEO since 2012, was previously Home Depot's executive vice president of operations. He also started working at a Miami-area Home Depot at the age of 16, so he knows the ins and outs of the home improvement business.

Floor & Decor is a specialty retailer focused on hard flooring surfaces like wood, vinyl, laminate, and stone. Like other players in its space, it is down sharply -- 48% year to date.

Yet the company has grown adjusted earnings per share at a 37.1% compound annual rate over the past five years, while growing revenue at a 25.5% rate.

Floor & Decor could just be getting started as a growth stock -- it has expanded its store count rapidly over the past five years to 160 locations as of the end of 2021, and it sees room to more than triple its footprint to 500 stores over the next eight to 10 years. If Floor & Decor can keep growing profitably as it does this, this stock looks like a good bet to provide investors with Home Depot-like returns in the years ahead. 

2. Fortune Brands Home & Security

Fortune Brands Home & Security (FBIN -2.98%) operates a portfolio of brands across three segments: water innovations (think fixtures for showers, kitchens, and bathrooms), outdoors and security (everything from security doors to personal safes), and cabinets. You may be familiar with some of its brands like Moen and Master Lock. While it's not as well-known as Home Depot, the company has an exemplary track record since it went public via a spin-off from Fortune Brands in 2011. It has rewarded its shareholders with a 354% gain since that point, which is identical to Home Depot's 354% gain over the last 10 years.

Its shares are now down nearly 50% from their 52-week high, which has created an attractive entry point for investors. It trades at 10 times earnings and just 8 times next year's earnings. And Fortune Brands buys back its own shares and pays out a dividend, which will add to investors' returns.

The company also has an interesting catalyst coming up -- it will spin off its cabinets segment to isolate the value of the faster-growing, more profitable water innovation and outdoors and security businesses. If management is correct, the market should eventually recognize the value of the new business and reward it with a higher multiple, creating even more value for shareholders.

With this attractive valuation, its dividend, its strong history of performance, and a potentially significant catalyst coming up, Fortune Brands looks like it could again match Home Depot's performance in the decade ahead.  

3. Ferguson

Ferguson (FERG -3.30%) is another stock that has been battered this year, but that has been a long-term winner. The company, a distributor of plumbing and heating products, among others, in the United States and Canada, returned 170% for shareholders over the past 10 years. The U.K.-based company has been around for 145 years and operates 1,679 branches and 11 distribution centers. Now down by 42% from its 52-week high, shares of Ferguson are starting to look attractive, trading at 11 times earnings. At the current price, they also yield 2.5%. 

Interestingly, the company moved its primary listing from the London Stock Exchange to the New York Stock Exchange this year to reflect the fact that 100% of the company's operations are in North America. This should help the company increase its visibility with U.S. investors and grow its shareholder base.

Ferguson posted phenomenal growth during its recently completed fiscal 2022. Net sales increased by 25% while adjusted operating profit grew by 41%. The company also returned more than $2 billion to investors via dividends and share buybacks.

The company has been setting itself up for more growth by making accretive, bolt-on acquisitions in its fragmented space -- 17 of them in fiscal 2022 alone. If Ferguson can keep growing revenue and profits at these impressive rates while rolling up more of its peers and returning capital to shareholders, the stock has the potential to deliver strong gains.  

Conditions are right for investors to find the next Home Depot

Stocks with exposure to housing have taken a beating this year. However, these declines have left many companies trading at attractive valuations. There aren't many companies that can boast the blue chip pedigree of Home Depot, but those who buy one of these long-term winners now could enjoy Home Depot-like returns over the next decade.