Home-Depot, the largest home improvement retailer in he world, struggled under the weight of the American housing collapse, but now looks poised for continued strength going forward.
Citing its performance this year, Home-Depot raised its earnings guidance to a respectable $2.95 per share. At a price of $54 per share, that represents a valuation of 18 times one year of earnings. For a fairly mature retailer, a valuation of 18 times earnings is not cheap, so at present levels growth in earnings would be needed for the Intelligent Investor.
The balance sheet of Home-Depot, however, is clean, with about $10 to $11 billion in long-term debt under assets of about $40 billion, so there is little concern in this area:
Should the housing market continue to improve, Home-Depot will show more strength, but since the stock is already up almost 80% during the past year, an improvement in the American housing market is clearly already priced into the shares.
For those interested in something a little off the beaten path in the hardware area, investigate Richelieu Hardware Ltd., (TSE:RCH) a Canadian concern with steady growth, a reasonable valuation, and little debt.
Cheers Intelligent Investors.
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