I think Mr. Market just took a two-by-four to the head.

Shares of Home Depot (NYSE: HD) climbed 3% yesterday -- just as Lowe's (NYSE: LOW) inched slightly higher on Monday -- after the home improvement chains posted quarterly results. I'd have to classify the performances as uninspiring, even if the upticks have a differing opinion.

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 (NYSE: LL) isn't as big as Lowe's or the orange aprons. It doesn't run gargantuan hardware stores. It just specializes in hardwood flooring, out of a fast-growing network of small-box locations with attractive store-level economics.

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



Home Depot








Lumber Liquidators




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 (Nasdaq: BLDR). It hasn't been consistently profitable since 2007. Trex (Nasdaq: TREX) is an intriguing maker of weather-resistant decks, but its seasonal swings may prove to be too wild to stomach.

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 (Nasdaq: SHLD) and occasionally even cheap chic discounter Target (NYSE: TGT)?

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.

Lumber Liquidators is a Motley Fool Rule Breakers selection. Builders FirstSource, Home Depot, and Lowe's are Inside Value recommendations. The Fool owns shares of Lowe's. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz had hardwood flooring put into each of his past two homes, but long before Lumber Liquidators popped up in town. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.