Prior to Christmas 2000, Home Depot
Nardelli's Home Depot uses new technology like self-checkout systems. A third of the customers use them (including me) and they cut checkout waiting times by 40%. As I mentioned in my earlier argument, Home Depot is also offering tool rentals in most stores (a line extension that allows the do-it-yourself customer to get everything for a job in one stop).
Investors should also like the new business strategy of opening stores in markets with existing stores. Ignore that the company admits that same-store sales were reduced by 1.5% in fiscal year 2004 by this strategy and recognize the strong profit margins each store enjoyed while overall same-store sales still rose.
While contractors have been courted for years, the company now has five wholly owned subsidiaries operating under The Home Depot Supply brand that target big professional marketplaces. Investors, this is not your father's Home Depot!
Finally, build a discounted cash flow model (or use the one found at the Motley Fool Inside Value newsletter site) to calculate the intrinsic value of this company. I like Foolish writer Seth Jayson's $53 price and understand the $46 valuation the astute folks at Inside Value endorse. Here's my take: Seth and Inside Value used 10% for annual earnings growth. I side with the analysts who see five-year growth at 14% a year -- so these calculations are both light for this $39 stock!
The Duel doesn't end here. Check out W.D. Crotty's original argument, as well as John Reeves' opposing view. Then click over to John's rebuttal. After you've read them all, vote for this week's Dueling Fools winner.
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