Home Depot (HD 2.05%), the leader in the home improvement market, hasn't been the best investment. In the past five years, its total return of 64% (as of March 2) is well below the S&P 500 index's 90% total return. Shares are trading 14% off their record.
Is this top retail stock a buy, sell, or hold in 2026?
Image source: Home Depot.
Macro headwinds pressure financial performance
During the fourth quarter of fiscal 2025 (ended Feb. 1), Home Depot posted revenue of $38.2 billion and adjusted diluted earnings per share of $2.72. Both of these headline figures came in ahead of Wall Street estimates. That's where the positivity ends.
For the entire fiscal year, the company reported that same-store sales rose by just 0.3%. And management expects this key metric to be flat to up 2% in fiscal 2026.
Home Depot has been dealing with softer demand for years now, ever since the pandemic surge abated. The tighter macro environment, with higher mortgage rates and pressured consumer confidence, does not help. This unfavorable backdrop doesn't make households want to spend a lot of money on upgrades and renovations.
"Our customers also tell us they have concerns over general economic uncertainty, including inflation, growing job concerns, and higher financing costs," CFO Richard McPhail said on the Q4 2025 earnings call.
Looking at the industry overall
It can be discouraging for investors to see just how cyclical Home Depot's operations are. This makes sense because it serves the housing market.
However, if you zoom out, you'll quickly realize that this is a high-quality business. Home Depot is a trusted brand in the industry. It has tremendous scale and reach with its 2,035 stores in the U.S. Investments in supply chain improvements and omnichannel capabilities over the years give the company an edge over smaller peers.
And the industry setup is favorable. The median age of houses in the U.S. steadily increases over time, which requires more maintenance. There are also trillions of dollars of untapped home equity that consumers can access.
NYSE: HD
Key Data Points
The stock is a hold
Home Depot has clearly been struggling. And there's no telling when sales and profit will start to rise meaningfully. But the company isn't going anywhere.
Adding to the bear argument is the fact that the shares aren't the cheapest. They trade at a price-to-earnings ratio of 26. That valuation is more expensive than the trailing five-year average.
I don't believe that this retail stock is a smart buying opportunity right now. On the other hand, selling isn't the best move, either. I think shareholders should hold their positions, and adopt patient optimism.
