Source:  Lowe's.

To find a good entry point in Lowe's (NYSE:LOW) for a long-term investment, you need to consider where the company and its earnings might be in 10 years and then discount that back to the present. With the stock at or near all-time highs, should you wait to buy in, or is it still undervalued? Let's see.

Ten years ago
Rewind a decade, and Lowe's was bringing in between $11 billion and $12 billion a year in revenue. Compare that to the fiscal year ending January 2015, when analysts estimate total revenue of between $55 and $56 billion. Lowe's has grown quite a bit!

The problem is its costs, especially overhead, have grown nearly as much. A decade ago, Lowe's delivered a bit over $2 billion annually in earnings, and for the current fiscal year that figure is expected to be about $2.6 billion.

Lowe's has done a great job of growing revenue, but not such a great job in turning extra sales into profit for shareholders.

Compare that to home-improvement retail rival Home Depot (NYSE:HD). Home Depot a decade ago had about $72 billion in annual sales and $4.5 billion in net income. Fast-forward to this year, and analysts expect roughly $6 billion in earnings on $82 billion in sales.

Home Depot hasn't grown nearly as fast as a percentage, but it was already quite large back then and has successfully leveraged its more modest 15% sales growth to 25% in income growth. By comparison, Lowe's 400% sales growth only resulted in a 30% increase in net income.

Is it Lowe's turn?
It seems like in any typical high-density area you can find a Lowe's and a Home Depot within driving distance. Take a peek at Google Maps, and you can see they both pretty much have the country covered. I'm sure there are pockets of opportunity here and there, especially as the population naturally rises and smaller chains or mom-and-pop competitors go bust, but the bulk of their growth is behind them.

Maybe now as a more mature company, Lowe's can add $10 billion in sales going forward like Home Depot did over the past decade. There are some segments to be excited about. Lowe's offers a semi-new service called ProServices, which focuses on commercial customers and has outpaced the rest of its business for the last 12 quarters.  While the company is shy on specifics, it was mentioned during the first quarter conference call this service is outperforming the rest of the company's same-store sales by a three-to-one margin.  Lowe's expects this segment to continue to outperform.  

But the real key for the company will be whether it is able to pass more of that revenue along to the bottom line through cost control.  Unfortunately the company has been short on details on how it may lower costs other than the vague mention of "value improvement" which hasn't contributed much historically.

As an example, gross profit margins for fiscal years 2011, 2012, and 2013 were 34.6%, 34.3%, and 34.6% respectively.  For the most recent quarter, it was again 34.6%.  Profit margins have gotten nowhere, and they realistically need to improve for Lowe's going forward to perform fundamentally like Home Depot did in the past.

While there are certainly some encouraging signs and Lowe's a company is doing great, there seems to be better stock values out there unless Lowe's stock price falls enough a lot to make an investment more enticing.  You may be tempted to jump into Lowe's thinking it will follow the same path as Home Depot did, but there is much hard evidence to suggest that will happen.

Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Home Depot. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.