Home Depot Stock Has an Ugly Post-Earnings History

Home Depot will report earnings on Tuesday, Nov. 16

Nov 15, 2021 at 12:09 PM
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The last time we checked in with Home Depot, Inc. (NYSE: HD), the stock was reeling from a post-earnings bear gap in August. Now, four months later, HD is riding infrastructure bill tailwinds ahead of its third-quarter earnings report, due out before the close tomorrow, Nov. 16.

A quick look at Home Depot's earnings report shows a rather pessimistic history of post-report reactions. The company's last eight reports have resulted in negative post-earnings moves, including a 4.3% bear gap last August. For tomorrow's trading, the options market is pricing in a 5.1% move for HD, larger than its average post-earnings move of 2.7% the last two years.

Home Depot stock is up nearly 40% in 2021, and was last seen trading at $371.09, a chip shot from its Oct. 29 record high of $375.15. Amid the last two weeks of consolidation below those levels, the shares' 20-day moving average has cushioned any sharper pullbacks.

HD Stock Chart

From a fundamental point of view, Home Depot stock continues to be a solid long-term investment, with a forward dividend of $6.60 and a dividend yield of 1.77%. HD has consistently grown its revenue and net income in recent years. Home Depot's revenues and net income are currently up 43% and 77%, respectively, since fiscal 2017. However, the biggest risks surrounding Home Depot stock are in the short-term, with HD's forward price-earnings ratio at 24.33 which marks a significant expected decrease in earnings compared to the current price-earnings ratio of 14.20.

In addition, Home Depot’s balance sheet is relatively weak, with $4.6 billion in cash and $42 billion in total debt. Overall, investors may be better suited waiting for Home Depot stock to retreat from its all-time highs before opening a position despite the company’s consistent growth on the fundamental analysis side of things.

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