Home Depot (HD -1.77%) has been a wonderful stock for investors to own. Its shares have climbed almost fivefold in the past decade, crushing the broader S&P 500 index by a wide margin. But in the past year, the stock has had a reversal of fortune and is down 24%, representative of the poor performance of the market generally.
Can Home Depot get back to its old ways and help you become a millionaire? Continue reading to find out.
Dominating the industry
Over the past five years -- through 2022's third quarter (ended Oct. 30) -- Home Depot's revenue and diluted earnings per share (EPS) have increased 56% and 130%, respectively. This demonstrates the company's ability to continue growing while boosting the bottom line. And with trailing-12-month sales of $157 billion, Home Depot has come to be the clear leader in the home-improvement industry, accounting for 17% of the gargantuan $900 billion market, according to management.
The business dominates an industry that isn't going away. Consumers will prioritize and invest in their homes in both good and bad economic times. In fact, if the U.S. does enter a full-blown recession, people could be more inclined to fix up their current living quarters as opposed to buying a new house. Home Depot, with its 2,319 stores, will be there to provide the right tools and supplies.
What's truly impressive about Home Depot is the fact that it has exhibited financial gains without the store count increasing much over the past several years. The leadership team, led by CEO Ted Decker, has done a fantastic job at growing the sales volume per store. Sales per retail square foot went from $391 in fiscal 2016 to $605 in 2021. And the return on invested capital, a metric that essentially tracks how much profit is generated in relation to the amount of cash that is reinvested in the business, was a stellar 43.3% in the latest quarter.
Home Depot is a resilient company that will utilize its massive scale to continue gaining market share as well as produce higher net income in the years ahead. So it's a stock that should be on investors' radars.
Running the numbers
However, to assess whether or not the business can make you a millionaire, you need to look at where shares are now and where they might be headed. Wall Street consensus analyst estimates call for Home Depot's EPS to rise by just 7% annually over the next five years. Assuming that the price-to-earnings multiple reverts back to its trailing-five-year average of 22, this implies a return of 56% between now and the start of 2028.
Home Depot currently pays a 2.4% dividend yield. And the business has consistently repurchased its own stock, reducing its outstanding share count by an average of 3.9% each year over the past decade. Including dividends and share buybacks, Home Depot can produce an annualized return of roughly 16% over the forecast period. Together with a group of other solid growth stocks, this could certainly contribute to one's becoming a millionaire -- given enough time and patience.
In my opinion, Home Depot is a safe and reliable business that can make for a solid foundation to anyone's portfolio.
