Home Depot (NYSE:HD) has been one of the best-performing stocks over the last several years, and investors hope it can keep the rally going in 2014. Earnings growth will be a key driver of sustained price appreciation, and its first earnings release of the new year is due out on Feb. 25. Let's take a look at the most recent release and expectations for the upcoming report to determine if we should be buying right now.

The king of home improvement
Home Depot is the largest home improvement specialty retailer in the world. It currently operates 2,260 locations in the United States, Puerto Rico, U.S. Virgin Islands, Canada, Mexico, and Guam. The company was founded in 1978, went public in 1984, and has been a part of the Dow Jones Industrial Average since 1999.

Source:Home Depot.

December blowout
The company's third-quarter report was released on Nov. 19 and the results blew past analyst expectations. Here's an overview of the key statistics:

Earnings per share $0.95 $0.89
Revenue $19.50 billion $19.17 billion

Earnings per share increased 28.4% and revenue rose 7.4% year over year, driven by global comparable-store sales growing an incredible 7.4%. Gross profit rose 8.5% to $6.8 billion, assisted by the company's gross margin expanding 64 basis points to 34.92%. Home Depot CEO Frank Blake noted continued improvement and strength in the housing market as one of the key drivers for the company's success in the quarter. Overall, it was an absolute blowout quarter and the stock reacted accordingly by rising to fresh highs through December. It has since fallen, however, and now sits below the level it was at before the report.

Expectations and what to watch for
The current consensus estimates for Home Depot's Q4 results look well within reach:

Earnings per share $0.73 $0.67
Revenue $18.01 billion $18.25 billion

These expectations call for earnings to increase 9% and revenue to decline 1.3% year over year. This seems very conservative, especially after Home Depot said the housing market was a "bright spot" in the economy and as a result raised its full-year forecast in the third quarter. For this reason, I am fully confident that Home Depot will meet if not exceed the current earnings and revenue estimates. Other than the key metrics, I would like to see three things out of Home Depot: 

First, and most important, Home Depot needs to report fiscal 2014 guidance that is within or above analyst expectations; the current estimates call for earnings per share in the range of $4.27 to $4.66 on revenue of $82.1 billion to $84.5 billion.

Second, I would like to see Home Depot's gross margin expand once again and exceed the 35% mark. In the fourth quarter of fiscal 2012, its margin was 34.89%, so 35% is well within reach.

Finally, I would like the company to have opened at least two new locations in the quarter. There have only been six net new locations added since the end of fiscal 2012, so I would like to see that number increase to eight.

If the earnings expectations can be met and these three things happen, I believe Home Depot will rise to a fresh 52-week high in the coming weeks.

Competitor calendar
The second-largest home improvement retailer in the world is Lowe's (NYSE:LOW), with 1,831 stores in the United States, Canada, and Mexico. The competition between this company and Home Depot used to be heated, but Home Depot has outpaced Lowe's same-store sales growth for the last several years and has widened the gap by a large margin. It last reported earnings on Nov. 20, showing the following results:

Earnings per share $0.47 $0.48
Revenue $12.96 billion $12.72 billion

Earnings per share increased 34.3% and revenue rose 7.3% year over year, driven by a 6.2% increase in same-store sales. Lowe's management confirmed the positive comments in Home Depot's report by stating, "The home improvement industry is poised for persisting growth in the fourth quarter and further acceleration in 2014." This is a great sign for Home Depot, Lowe's, and the U.S. economy as a whole. Although this appeared to add up to a good quarter, it was mixed compared to expectations; this caused the company's stock to fall more than 6% in the trading day, and it has yet to recover.

Source: Lowe's.

Lowe's is slated to report fourth-quarter results on the day after Home Depot, Feb. 26. The current estimates call for strong growth on both the top and bottom lines, but it would be smart to wait to see Home Depot's results before initiating a new position or adding to your current position. With this said, I still prefer Home Depot over Lowe's since it is the top dog in the industry and has performed much better over the last few quarters.

The Foolish bottom line
Home Depot is one of the strongest companies in the market today and it has the potential to outperform the market for several years. I believe the current fourth-quarter earnings expectations are well within reach. I think investors should strongly consider initiating a position going into the report or on any weakness following its release.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.