The Consensus Opinion on Home Depot: Bearish

Home Depot (NYSE: HD) attracts a lot of institutional and retail investor interest. That's likely no surprise, given its position as a dominant $60 billion big-box retailer. What surprised me, though, was its status as the No. 14 most-owned stock by investment clubs, as measured in April by the folks at Better Investing. Because retail investors were high on the stock, it got me to thinking: What's the consensus sentiment view on Home Depot?

Turns out, the view is bearish. Let's have a look at a few of the key sentiment drivers.

1. Analyst opinion
Analysts are neutral on Home Depot. Data from Capital IQ captures their collective feeling:

Fourteen analysts have either a "buy" rating or an "outperform" on the stock. However, 15 rate the stock a "hold," "underperform," or "sell," making for a fairly even split. For purposes of this exercise, we'll classify analyst sentiment as neutral.

2. Insider buying
Next we'll look at insider buying and selling. Over the past year, Home Depot insiders have sold $457.1 million worth of their company stock. During the same time period, insiders didn't buy a single share. (Data from Form4Oracle.)

We shouldn't read too much into insider selling. Insiders sell stock for a whole host of reasons -- to pay for a house or tuition, to diversify assets, and so forth. Still, it'd be nice to see any insider buying. And even though Home Depot has a $60 billion market cap, almost half a billion in insider selling is hard to call minor.

I'll classify the insider buy/sell picture, then, as bearish.

3. Guru buying
Next, we'll look at "guru" ownership of the stock, according to GuruFocus.

In the quarter ended March 31, four gurus traded Home Depot -- and all four were sellers. Three of them (John Hussman, Richard Perry, and Tweedy Browne) sold out of their stakes. In the previous quarter, the picture was mixed: three buyers and four sellers.

For the overall picture, we'll classify guru sentiment as bearish.

4. Retail investor community sentiment
For retail investor community sentiment, I turn to Motley Fool CAPS, our proprietary stock rating system. CAPS generates ratings on a one- to five-star scale, with five stars as the highest ranking, indicating that the Fool community believes in a stock's future. Home Depot has a neutral three-star rating.

5. Short-sellers
Next we'll look at whether short-sellers are circling the stock. There are 27.2 million Home Depot shares sold short, according to Capital IQ. As a percentage of shares outstanding, that's a short interest of 1.7%. That's not very high, and so for determining sentiment, we'll classify the low short interest as bullish.

6. Does Buffett own it?
This is the "cherry on top" test, and in this case, it's a no: Berkshire Hathaway sold its entire Home Depot stake, nearly 3 million shares, in the third quarter of 2010.

Adding it up
The consensus opinion on Home Depot is bearish. Insiders and gurus lean that way, and Berkshire sold its stake toward the end of last year. Analysts and the CAPS community are neutral on the stock. In the lone positive sign, short sellers are staying away.

Of course, you can't base an investment philosophy on who likes or dislikes the stock you own, and even a consensus bullish opinion can sometimes be a scary thing. Quoting Buffett: "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful."

The purpose of this series of articles isn't to make a definitive buy-or-sell call on Home Depot. Rather, by looking at a stock's sentiment, the goal is to help you place your own opinion of it in a broader context.

One final thing: If you want to keep tabs on Home Depot's movements, and for more analysis on the company, make sure you add it to your watchlist.