My Foolish adversary is talking like a bear but walking like a bull. After all, he admitted to being long shares of embattled Home Depot
Seth argued that three factors made him bearish on the company: the housing bust, the company's scale and competition, and its managers' bad behavior. I'd say the first and last points are either unquantifiable or short-term in nature. Neither can overshadow the impressive growth statistics Home Depot has posted over the past five years, despite its suffering stock. It's hard to argue with 10 straight years of improving returns on invested capital. I think now may be a good time for Fools to turn short-term negativity to their advantage and consider investing in both Home Depot and its giant counterpart, Lowe's
Housing and economic concerns? Hooey!
The jury's still out on how the cooling housing market will affect the national economy in the short or long term. There are plenty of unknowns -- an imploding market for new construction could spur renovations, while post-hurricane reconstruction efforts might help offset a weakening business cycle. I've also heard arguments that as baby boomers retire, they will increasingly pursue home-improvement projects to stay busy. For now, it's hard to tell what will happen, and any downside concern is likely already priced into Home Depot's shares.
Jerks with good track records
The people in management have certainly acted like jerks, but it's done nothing to materially impair the business or its financial prowess; the numbers speak for themselves. And while CEO Robert Nardelli has shown small-f foolish disregard for his shareholders, senior management has since switched to a mea culpa and even brought back the same-store-sales figures for which retail investors salivate. As long as the financial results stay strong, Nardelli's job should be secure.
The market's still huge
As for Seth's second concern, I do believe the competition is intense. Lowe's is fast on Home Depot's trail as the largest and most efficient home-improvement retailer, but the market is large enough for both to continue expanding their scale and their market share. Since they currently command only 24% or so of a $700 billion market, both can continue to open stores and consolidate the do-it-for-me space of construction and remodeling contractors, even amid short-term economic gyrations. Even suppliers such as Masco
In summation ...
I can't entirely argue with Seth's complains about the shoddy condition of his local Home Depot. With a recent new home, I've spent a lot of hours at my local Lowe's, frustrated at how long it takes to wait in line or fill out endless paperwork to have a ceiling fan replaced. (I'll soon go to Home Depot to support my stock, since one is opening next week down the street.) But no matter how much we complain, most consumers will still spend significant time and dollars at the two primary home-improvement giants. They're everywhere, they're conveniently located, and they have just about every home product imaginable. That's why I think they'll be successful for a long time to come, despite a few speed bumps along the way.
Fool contributor Ryan Fuhrmann is long shares of Home Depot but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.