Even though home prices currently hover near 2009's lows, home-improvement retailers' quarterly results seemed to buck that ugly trend. Should investors hammer out a position in these stocks?
Fellow home improvement rival Lowe's
But the appearance of improvement at Home Depot and Lowe's may be just a facade. After all, the housing market has been stagnating for years now; easy comparisons to yesteryear make both companies look a bit stronger than they are. Until this latest report, Home Depot hadn't posted a revenue increase since the year ended January 2007. Lowe's annual sales growth has averaged just 0.4% over the last three years, and just 2.5% over the last five years. That's not quite surprising, considering 2008's housing plunge.
Housing data doesn't look like a big growth driver for these companies going forward. Average home prices fell 4.1% in the last three months of 2010, and their plummet may not have ended yet. Robert Shiller of Case-Shiller fame predicted that home prices could fall 15% to 25% further. Although Toll Brothers
Such factors bode poorly for robust growth at Home Depot and Lowe's. Amid an ugly macroeconomic climate that doesn't portend a huge move toward upgrading houses, home improvement stocks still aren't hospitable for prudent investors.
Home Depot, Lowe's, and Wal-Mart are Motley Fool Inside Value recommendations. Wal-Mart is a Motley Fool Global Gains choice. The Fool owns shares of Lowe's and Wal-Mart. Try any of our Foolish newsletter services free for 30 days.
Alyce Lomax does not own shares of any of the companies mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.