Want to Buy Home Depot Stock? This Could Be 1 Tip for Its Success

Buying an industry leader is usually good for investors in the long run. This is true even in the home improvement sector.

If youexist 10 years ago Buy-in Value $10,000 (used form a nominal expression)Home Depot (NYSE: HD)If we look further back, the returns are even more impressive. If we look further back, the returns are even more impressive.

As this top-of-the-line retailer strand With the stock trading 18% below its peak price (as of April 12), you may be looking at Home Depot as a possible investment idea. Before you buy the stock, it's important to understand the secret to its success.

Understanding Different Customers

I'm sure you're no stranger to the Home Depot business. It sells important tools and supplies such as lumber, appliances, lawn and garden products to customers throughout the United States, Canada and Mexico. There are currently 2,335 stores.

But what you may not realize is Home Depot's customer base. Home Depot serves DIY customers who may want to tackle much smaller projects around the house. This group accounts for about half of all sales.

Other client groups include professional contractors, electricians, engineers, etc. These people handle larger, more complex projects on behalf of the owner. These people handle larger and more complex projects on behalf of the owner.

Home Depot's Competitors Lowe's)Only 25% of its revenue comes from professional contractors. Home Depot makes more money from professionals, which is the key to its excellent financial performance. exist In the past ten years(math.) genusits on averageReturn on Invested Capital and operating margins were higher than those of Lloyd's Register.

This is because professionals visit stores more often and spend more money. If retailers get more of these customers in the door, their financial metrics will undoubtedly get a boost.

Therefore, Home Depot is likely to benefit from high switching costs. Professionals who have longstanding relationships with Home Depot as a service provider for critical tasks and as a郃 partner are highly visible and are unlikely to purchase products from competing retailers. Home Depot caters to these customers with features such as loyalty programs, volume price discounts, and customer service lines.

Home Depot recently announced that it will Acquisition of SRS Distribution for over US$18 billionThe target company is strong in the provision of roofing materials and building supplies. The target company is strong in the provision of roofing materials and building supplies. This only enhances Home Depot's standing in the eyes of professionals as it is now better equipped to meet their specific needs.

Short-term pessimism, long-term optimism

Although Home Depot dominates its peer group, it has not been immune to the macroeconomic headwinds of the past. Higher interest rates, inflationary pressures, and lingering fears of a recession have all held back spending on big-ticket items. The blow to Home Depot was so pronounced that its revenues fell 3% in the last fiscal year. management expects the difficult times to continue.

I believe these near-term challenges will eventually subside. If we take a five- or 10-year view, the outlook for Home Depot is good. Over time, this will drive sales and earnings growth.

The U.S. housing shortage is driving people to stay in their existing homes and focus on upgrading and remodeling. Home Depot benefits from this trend.

In addition, the median age of homes in the U.S. is 40 years. Again, such a high number stimulates demand for products sold by Home Depot.

In fiscal year 2023, Home Depot's revenue will reach $153 billion. Although this is a huge figure, Home Depot only accounts for 15% of the total industry. There is still a lot of room for growth to be grasped.

Investors who are able to look past the recent headwinds should consider buying the stock.

Should you invest $1,000 in Home Depot now?

Before buying Home Depot stock, consider the following:

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Neil Patel does not hold any of the above stocks. the Motley Fool holds a recommendation for Home Depot. the Motley Fool recommends Lowe's Companies. the Motley Fool has a disclosure policy.

Want to Buy Home Depot Stock? This Could Be 1 Tip for Its Success was originally published by The Motley Fool.