Maybe Lumber Liquidators
Shares of the hardwood-flooring retailer rose 6% yesterday, as Longbow Research initiated coverage with a buy rating. The analyst set a $32 price target, which is 22% ahead of where the stock closed on Monday night.
The timing couldn't be any better for the chain. The stock has meandered while equity markets have rallied in recent weeks. Goldman Sachs also downgraded shares of home-improvement leader Home Depot
However, maybe it's time to separate Lumber Liquidators from slower-growing behemoths Home Depot and Lowe's
I recently compared the growth metrics of all three retailers during their latest quarters. It wasn't even close.
|Q2 Growth||Net Sales||EPS||Same-Store Sales|
Lumber Liquidators does trade at a premium to its larger peers. It fetches nearly 19 times next year's projected profitability. Home Depot and Lowe's trade at a more attractive multiple of 13 to 14 times next fiscal year's earnings target. However, the pros also see Home Depot and Lowe's growing their sales in the low single digits during the next two years. Lumber Liquidators' top line is pegged to improve at a clip in the mid-teens.
Quite frankly, I'd also want to bank on a company specializing in hardwood flooring over the cavernous catch-all found in the larger superstores. Real estate speculation is toast. Instead of condo flippers making over acquired properties with cheap carpeting, the new breed of homebuyers -- folks who will actually be living in their homes -- will want the more stylish hardwood.
This is the kind of trend that will also bode well for weather-resistant decking specialist Trex
Beyond Lumber Liquidators and Trex, it's probably best to stay away from this space. Builders FirstSource
There is a glut of existing homes, so why gamble on a turnaround in new construction despite recent profitable turns by leading homebuilders? The best plays are feasible home improvement projects that include hardwood flooring from Lumber Liquidators or installing a new Trex deck in the backyard.
With this bullish call, Longbow's aim looks good.
Would you rather own Lowe's, Home Depot, or Lumber Liquidators? Share your thoughts in the comments box below.
Builders FirstSource, Home Depot, and Lowe's are Motley Fool Inside Value recommendations. Lumber Liquidators is a Motley Fool Rule Breakers pick. The Fool owns shares of Lowe's and Lumber Liquidators. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.
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.