Home Depot Vs Sherwin Williams Stock

Home Depot vs Sherwin Williams Stock: Real estate has always been a popular investment. While specific projects, developments, and properties may not turn a profit, many people have built fortunes from buying and selling property on a large scale.

It stands to reason that related industries like home improvement would be equally as lucrative. After all, there is a direct relationship between the health of the real estate market and the success of companies that support building, renovating, and refurbishing homes and businesses.

Unfortunately, it’s not quite that straightforward. There is opportunity for building wealth with home improvement stocks, but as with any investment, careful research is key to getting the results you want.

Consider the potential risks of investing in home improvement stocks, and examine the strengths and weaknesses of each company before making a trade.

Pros and Cons of Investing in Home Improvement Stocks

The biggest advantage to investing in the home improvement industry is that building, repairing, and improving homes never goes out of style. There is always a need for certain core materials like lumber, paint, plumbing equipment, and roofing supplies.

Better still, smart home improvement retailers have a higher than average chance of surviving the transition to e-commerce, because consumers continue to show a strong preference for buying such materials in-person.

The downside of investing in home improvement stocks is the risk to revenues when the housing market slows. When there aren’t enough buyers for the available properties, it is less likely that developers will launch new projects. That means lower sales for home improvement retailers.

There is an unusual paradox in today’s housing market. There aren’t enough homes available for sale to meet demand, but investors and developers are struggling to increase supply. There isn’t enough skilled labor to keep up with construction and renovation needs, and material costs are going up more quickly than anticipated. Changes in tariffs have made this issue more pronounced.

Usually, a real estate shortage is great news for home improvement companies like Home Depot [NYSE: HD] and Sherwin-Williams [NYSE: SHW].

Booming demand means plenty of building projects, which is where such companies make major sales. However, with the current circumstances, these retailers are more reliant on individual homeowners who are taking on smaller projects.

Some shareholders have seen a drop in the value of their stock in the current market, but that means opportunity for investors who are new to the industry. The question is, which home improvement stock is most likely to yield strong returns?

Is Home Depot a Buy?

Over the past 10 years, Home Depot [NYSE: HD] has continued to grow, though other types of retail chains have failed.

The company offers construction and home improvement solutions for a wide range of customers, from general contractors to weekend do-it-yourselfers.

Because product is often bulky and heavy, it is hard to ship, so Home Depot doesn’t face pressure from e-commerce giants like Amazon [NASDAQ: AMZN]. Perhaps more importantly, consumers prefer to see and touch home improvement materials before making a purchase.

That isn’t to say Home Depot [NYSE: HD] has ignored the digital revolution. It has a robust website with engaging content and plenty of opportunity to buy online.

Thanks to the company’s solid product selection, affordable pricing, and flexible delivery channels, Home Depot has grown revenues by 60% in 10 years. Operating margins have more than doubled in the same time period, and net income has gone up fivefold.

Year-end numbers for 2018 were strong when compared to 2017. Sales totaled $108.2 billion, which was an increase of 7.2%. Earnings per share came in at $9.73, up from $7.29 in 2017.

All of this translates into good news for investors. Home Depot’s dividends are reliable, and the dividend yield is 2.2%.

Aside from the issues inherent in home improvement stock, like the risks presented by a downturn in the housing market, Home Depot [NYSE: HD]t has a disadvantage that gives some investors pause. That is, there is very little room for Home Depot to grow.

There aren’t many more areas in which the company can improve its margins, and there are few new markets to explore. Home Depot [NYSE: HD] plans to open a net total of five new stores in 2019, so the only growth investors can reasonably expect is in same-store sales.

As a result of Home Depot’s limited growth opportunity, some investors are examining alternatives within the industry.

Should You Invest in Sherwin Williams Stock?

Sherwin Williams operates in the same home improvement space as Home Depot [NYSE: HD], but it offers a far more specialized product line.

While Home Depot’s paint department is just a fraction of its overall business, Sherwin-Williams [NYSE: SHW] specializes in paints, stains, and protective coatings tailored to every possible need.

Over the past 10 years, Sherwin Williams’ growth has matched that of Home Depot [NYSE: HD].

In 2017, the company acquired Valspar which caused a sudden jump in revenue, so the company’s final 10-year growth rate comes in at 135%.

Unlike Home Depot, Sherwin Williams’ net income growth is primarily from this growth in revenues. Home Depot accomplished its increases by expanding its margins. However, that could change in coming months.

The acquisition of Valspar reduces competition in a market where competition is already limited. Sherwin-Williams [NYSE: SHW] may be able to increase margins through higher prices as it works to fully integrate the combined companies.

Home Depot vs. Sherwin Williams Stock

In a head-to-head comparison, Sherwin-Williams [NYSE: SHW] appears to have an edge over Home Depot in terms of future prospects.

While both have a solid history of growth and improved profits, Sherwin-Williams [NYSE: SHW] has more opportunity for growth in coming years.

Home Depot [NYSE: HD] is focused on increasing same-store sales, and Sherwin Williams is working through the integration of Valspar.

The completion of this project promises to drive substantial growth for Sherwin Williams, and perhaps increased value for shareholders.

Of course, income investors are far more concerned with the companies’ dividends. From this perspective, Home Depot [NYSE: HD] is definitely a better buy, as Sherwin Williams dividend yield is below 1%.


The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.