I think Mr. Market just took a two-by-four to the head.
Shares of Home Depot
For starters, let's take a closer look at store-level sales. Home Depot's 1.7% gain is pathetic, especially once you know that it's stacked on top of an 8.5% decline from the same quarter a year ago. Lowe's clocked in with comps of 1.6%, and that's after a putrid 9.5% slide a year earlier.
In other words, the average store is still selling far less than it was two years ago.
It gets worse. Comps at Lowe's during the fiscal 2008 second quarter plunged 5.3%. Go back another year and you'll find a 2.6% stumble during the same period in 2007. You have to go all the way back to 2006 -- long before the recession and the housing meltdown -- to find positive comps during the quarter. Applaud all you want, Lowe's fans, but your stores are a shell of what they were four years ago.
Allow me to throw a third company in the mix. Lumber Liquidators
Lumber Liquidators doesn't operate on the same fiscal year as the big 'uns. Its second quarter ended a month earlier. However, we can still compare comps for illustrative purposes. The flooring retailer's comps rose 5.5% during the second quarter, more than enough to offset the 1.8% decline from a year earlier. Store-level sales in Q2 2008 inched 2.7% higher.
Home improvement isn't all about comps, so let's take a closer look at other metrics for the second quarter.
Q2 Growth |
Net Sales |
EPS |
Comps |
---|---|---|---|
Home Depot |
2% |
9% |
1.7% |
Lowe's |
4% |
14% |
1.6% |
Lumber Liquidators |
18% |
28% |
5.5% |
Now, you may expect Lumber Liquidators to be trading at some ridiculous premium to the sluggish behemoths. Lumber Liquidators still has plenty of room to grow in a fragmented market. It's growing considerably faster than companies that matured years ago.
Well, while Lowe's and Home Depot trade at 12 and 13 times next year's projected profitability, respectively, Lumber Liquidators is fetching a mere 15 times next year's bottom-line target. That's not much of a premium for not having to squint in a rearview mirror to see better days.
I'm not asking you to take a gamble on Builders FirstSource
Why not Lumber Liquidators? Why not specialize in a thriving housing niche, instead of worrying about general merchandise that one can find through Craftsman parent Sears
I realize that Home Depot and Lowe's pay out meaty dividends. Lumber Liquidators is using its cash flow to bankroll its growth and expansion. Outside of the Nil City yield, Lumber Liquidators is superior in nearly every way.
It's something you can build on -- and isn't that what investing is all about?
Would you rather own Lowe's, Home Depot, or Lumber Liquidators? Share your thoughts in the comment box below.