Home Depot (HD -0.15%) is the leading home improvement retailer in the world. It has 2,300 stores in North America, and it's often the go-to place for advice or tools when consumers need to do repairs and maintenance on their homes.
But while it was a hot buy during the early stages of the pandemic, the stock has struggled this year as concerns about a slowdown in the housing market and rising inflation have made investors bearish on Home Depot.
Before you decide to buy or sell the stock, you should look at these five charts, which can help summarize where the business is right now.
1. The company has generated consistent revenue growth
What's impressive about Home Depot's business is that while its revenue soared during the past few years in the scorching-hot housing market, the company has generally posted solid, consistent revenue growth over the years.
That consistency is a testament to the ongoing need for home repair and the stability that it offers a top home retailer like Home Depot. While significant year-over-year growth may not be the norm, investors also shouldn't expect a sharp drop in sales either, as home repair can be a necessary expense for consumers.
2. Home Depot has no problem generating positive free cash flow
Another solid feature of Home Depot's business is that it consistently generates positive free cash flow. This is important because it's a sign the company is operating efficiently by generating enough cash flow, which can lessen the need for the business to raise money through debt or stock offerings, which can dilute existing shareholders and potentially send a stock into a tailspin.
3. Home Depot has been generously raising its dividend
Given the company's sound, consistent financials, it should come as no surprise that Home Depot also makes for a solid dividend stock. The company has consistently been raising its payouts in recent years, and earlier this year, it increased them by 15%. And when compared to a decade ago, the dividend is now six times larger than the $0.29 it was paying investors back in 2012.
Despite this mammoth growth, Home Depot isn't a Dividend Aristocrat (it didn't increase its payouts during the financial crisis). But it's still a top dividend growth stock investors can buy and hold for years. Its 2.6% dividend yield is almost a full percentage point better than the S&P 500 average of 1.8%. And its payout ratio of 44% still leaves plenty of room for more rate hikes in the future.
4. Historical earnings ratio suggests the stock is a good buy
Home Depot's stock has declined about 30% this year, and although it's not at a 52-week low, it's still trading fairly low with respect to earnings. The average stock on the S&P 500 trades at 18 times profits, which is right in line with where Home Depot's stock trades right now.
However, given the impressive growth the company has generated over the years, there's an argument that it is worth more of a premium than the average stock, and that its low multiple creates an attractive buying opportunity for investors today. But that doesn't mean the stock isn't an entirely risk-free investment right now.
5. Rising inventory levels suggest some near-term risk
Many retailers are struggling with elevated inventory levels, and Home Depot is no exception. With inventory at all-time highs, this can mean some tough quarters ahead for the business that could hurt its margins and negatively impact profitability and cash flow.
Inventory is a key number investors should be watching, as it could offer insight into how well the company is managing its excess inventory and whether there may be trouble ahead for the business.
Is Home Depot stock a good buy today?
Overall, there aren't many negatives to take away from these charts. While inventory levels are concerning, this won't likely be a long-term issue, and it's something that many retail companies are battling due to supply chain problems.
With strong continued growth, good cash flow, a fantastic dividend, and a reasonable valuation, Home Depot is a stock that investors should consider loading up on today and holding for the long haul.