Over the very long term, the S&P 500 (^GSPC 0.40%) has produced an annualized return of about 10%, a figure that includes dividends. That's a respectable gain, but some companies have performed significantly better.
Since this company's initial public offering in September 1981, it has generated a monster total return of 3,157,000% (as of May 22), crushing the broader benchmark. This means that had you invested $1,000 over four decades ago, you'd be sitting on an unbelievable balance of nearly $32 million today. This is a truly astonishing outcome.
Continue reading to learn more about this business and its rise, as well as what investors should do with the stock right now.
Image source: Getty Images.
Building a retail juggernaut
It's rare to see companies remain relatively the same over time. But this is precisely the case with Home Depot (HD 0.03%), which has put up such a tremendous return for shareholders over the years.
Decades ago, the business was selling things like lumber, electrical supplies, and hardware to both do-it-yourself shoppers and professional customers. This hasn't changed.
The only thing different now is just how massive Home Depot has become. This company carries a market cap of $365 billion. And in the past 12 months, it registered revenue of $163 billion, undoubtedly making it one of the biggest retailers on the face of the planet. That figure is roughly double what Lowe's collected in sales, the company's key rival in the industry.
An important part of the strategy was to rapidly open new stores. In 1993, which is the earliest data available on the Securities and Exchange website, Home Depot had 264 stores in operation. Early executives understood that success at existing locations could probably be replicated. As of May 4 of this year, there were 2,350 Home Depot stores in total, with 182 in Canada and 140 in Mexico. The company is so ubiquitous that there's a store within 10 miles of 90% of the population in the U.S.
Home Depot now generates consistent profits, with its operating margin averaging 14.2% in the past decade. This allows the leadership team to return capital to shareholders. In the latest fiscal quarter, $2.3 billion was paid out in the form of dividends, providing a nice income stream.
Is it time to buy the stock?
Home Depot's historical track record at compounding shareholder capital is nothing short of spectacular. It's proof that patience can pay off.
Investors looking to buy the stock today must view the situation with a clear lens, though. The company might have experienced stellar growth in the past, but this isn't the case anymore. The macro environment, one that has high mortgage rates and general uncertainty among consumers, continues to pressure demand for big-ticket purchases.
This explains why Home Depot's same-store sales dipped 0.3% in Q1. This was after the company posted declines in both fiscal 2023 and fiscal 2024.
However, the overall industry still presents a favorable backdrop. More than half of homes in the U.S. are at least 40 years old, according to Home Depot CEO Ted Decker. There's also a sizable housing inventory shortage that encourages spending on renovations and upgrades.
Near-term struggles with long-term tailwinds describe the way investors should view Home Depot. The valuation must also come into focus. As of this writing, the stock trades at a price-to-earnings ratio of 24.9. This doesn't present a bargain opportunity, in my opinion. The valuation is expensive, so investors shouldn't buy now.
This has been an unbelievable stock to own in the past. The future is sure to look much different.
