Home Depot (HD) has been selling tools, construction materials, and other home improvement products since 1978. The business has experienced steady growth as it expanded from Atlanta, GA to locations around the country. Today, the company has more than 2,200 retail locations.
Anyone who reviews the company’s stock value will notice that its price has skyrocketed in recent years. This leaves many people wondering, “why is Home Deport stock so high?” and “should I bother buying stocks in the home improvement company?”
Is Home Depot a Good Stock?
A few traits make Home Deport look like a good stock to add to your portfolio. Perhaps most importantly, neither Wal-Mart nor Amazon has practical strategies for undermining Home Depot’s business model.
While homeowners can buy basic products from Amazon, the e-commerce site doesn’t have a reliable way for customers to compare appliances, lawn care equipment, windows, drywall, wood planks, and other large items with high price tags.
When it comes to lumber and other building supplies, knowledgeable buyers understand the importance of inspecting the materials. A warped board could make an otherwise simple project difficult. With e-commerce sites, buyers never get opportunities to examine their materials.
These and other factors make Home Deport a good stock to own. When you purchase the stock, however, it matters quite a bit. If you can buy shares for less than $250 each, then you may have an opportunity to make some money. As long as the price stays above $250, use caution. You never know when the value could fall suddenly.
Why Is Home Depot So Expensive?
In 2011, Home Depot’s stock value began a years-long climb that has left many people wondering why the stock costs so much. Near the end of 2011, investors could buy stock for about $40 each. By the end of 2015, the price had exceeded $130. In mid-August 2020, Home Depot reached its highest value at nearly $283.
Not many stocks have rallied during the COVID pandemic. Home Depot stands out as a company that has seen exceptional gains after a short-term dip in March and April.
The recent increase in value likely comes from the number of people using their stimulus checks on home repairs.
Plenty of people found themselves furloughed from work while their employers improved workplace safety or transitioned to remote working opportunities.
With time and $1,200 in their hands, a lot of households decided to invest in their homes by replacing worn-out appliances and tackling projects that they haven’t had time to address.
It’s worth noting that Home Depot’s stock price started increasing long before stimulus checks reached consumers.
Much of the value accumulated between 2011 and 2019 likely comes from the company’s ability to expand into other areas, meet consumer expectations, keep overhead relatively low, and earn strong profits.
What Was Home Depot IPO Price?
When Home Deport first went public on September 22, 1981, investors could buy shares for $12 each.
Investors could also take advantage of a split-adjusted price that came to $0.03 per share.
A person who bought 1,000 for $0.03 in 1981 would have generated about $282,000 in wealth by the summer of 2020.
Is Home Depot Stock Overvalued?
Whether Home Depot stock is overvalued depends on who you ask. Some investors believe that the upward trajectory will continue for several more years. Others think that the price has gotten out of hand. The company can’t possibly continue its level of growth and profits, so selling soon makes sense.
There is another aspect to consider. If Congress can pass another round of stimulus payments, the Home Depot stock will probably experience a short-term increase in value.
Current owners may be smart to hold on to their shares until they know whether they can expect more increased spending in household repairs and replacements.
The future of Home Depot stock is probably tied to ongoing stimulus packages from the federal government and how long it takes for Americans to start socializing safely again. Savvy investors will keep their eyes on these factors.
If Congress fails to pass meaningful support, then unemployed people won’t have enough money to spend on home improvement projects. If someone develops a COVID-19 vaccine soon, then more people will return to work, which means they will have less time for home improvement.
Why is Home Depot Stock So High: The Bottom Line
Buying into Home Deport looks a bit risky at the moment because the shares have such high prices. Unless the upward trend continues, buying the stock at $280 will probably mean that you lose money over the next several months.
If you already own Home Depot stock, though, you could consider holding on to it for at least a few more months to see how the government attempts to prop up the economy, whether the pandemic concerns recede, and which direction the stock price moves.
If you purchased the stock several years ago, then you have already made a tidy sum. You can afford to wait a while to see what happens. You may not make as much money as investors who get lucky and sell at the peak price, but you will still make a healthy return.
The bottom line is that now is a good time to study Home Depot shares for changes in direction. A sudden drop might signal the time to sell. A continuing upward slope probably means that you may be best served to resist the urge to sell your shares for a quick profit. If the price keeps increasing, you will feel like you missed an opportunity to generate even more wealth.
Keep doing your research and paying attention to the news. No one can always predict how stock prices will move, but you can make an informed decision that grows your wealth.
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.