Lowe's Companies (LOW -0.04%) recently reported results for its fiscal 2023 fourth quarter (ended Feb. 2). Net sales of $18.6 billion were 17% lower compared to the year-ago period, with diluted earnings per share (EPS) coming in at $1.77. The headline figures were better than what Wall Street analysts were expecting.

Like its larger peer, Home Depot, this business is dealing with ongoing headwinds that pressure demand for home improvement products. As of Feb. 27, the retail stock was 12% below its all-time high, even though it has soared 120% in the last five years.

Is it the right time to buy Lowe's hand over fist with $1,000?

Sizing up the latest quarter

Same-store sales, a key metric for retail businesses to track how well existing locations are performing, declined 6.2% last quarter "due to a slowdown in [do-it-yourself] demand and unfavorable January winter weather," the press release read.

After a surge in demand during the height of the pandemic, the current economy -- characterized by higher rates, inflationary pressures, and recessionary fears -- is discouraging consumers from spending on big projects. The leadership team believes net sales will total $84 billion to $85 billion this fiscal year, which would translate to a drop of over 2% at the midpoint.

For what it's worth, Lowe's was able to expand its operating margin from 10.5% in fiscal 2022 to 13.4% last year. And the business continues to return lots of capital to shareholders, with $633 million in dividends paid and $404 million in stock buybacks completed in just the last quarter.

Industry tailwinds

The home improvement industry might be dealing with a slowdown, but the long-term outlook still looks favorable. This provides Lowe's with a growth driver.

Management estimates that the home improvement market is worth $1 trillion, giving Lowe's a small 8.6% share at the moment. But it's a fragmented industry, so there is a ton of opportunity to steal market share from much smaller stores scattered around the country. A scaled operator like Lowe's has the supply chain and inventory capabilities to better serve customers with exactly what they need.

There is also an ongoing housing shortage in the U.S., estimated at roughly more than 3 million homes. This encourages people looking to buy a new place to instead spend on home upgrades. Housing affordability appears to be a problem in this country that isn't going away anytime soon.

CEO Marvin Ellison spent years in leadership positions at Home Depot. Since he took the helm at Lowe's in 2018, a key focus for him has been to boost sales to professionals -- people like contractors, plumbers, and electricians who tackle larger renovation projects. They spend much more money and visit stores more frequently.

Lowe's currently generates about 25% of its overall revenue from pros, with the rest coming from do-it-yourselfers. Home Depot, on the other hand, has a 50/50 split, which helps explain why it has typically registered a better operating margin and return on invested capital.

As Lowe's aims to catch up to its competitor, with a revamped loyalty program, as well as other offerings, there's an opportunity for profitability to expand significantly. We've already seen this trend play out. The company's operating margin went from 5.6% in fiscal 2018 to 13.4% in fiscal 2023.

In your shopping cart

Investors might find the current valuation enough of a reason to scoop up shares. The price-to-earnings ratio of 17.8 is well below Home Depot's 24.6, and I think it fully reflects the struggles the business has been facing.

But if you're able to maintain a long-term mindset, Lowe's looks like a smart buy. Shares have done a wonderful job rewarding investors in the past, and they are likely to continue this performance.