Why Home Depot's Pain Could Be a Long-Term Investor's Gain

Home Depot (NYSE: HD) is rarely a bad stock to hold, but it is occasionally a poor choice to buy. The best times to buy are not when the price is at a peak, above its moving averages, or showing resistance. Instead, good buying opportunities include setups like the one in mid-November after the Q3 earnings release. 

The Q3 earnings release was lackluster, giving some investors an excuse to sell. Still, the move is opening up an attractive buying opportunity for others, with HD stock trading near one-year lows and the low end of a trading range where support is likely to be strong.

Support is likely strong at this level because it coincides with a long-term uptrend line rooted in the 2011 price action. The takeaway is that HD stock is under pressure today from forces outside its control, but is poised to rebound soon and is likely to deliver market-beating total returns over the subsequent three-, five-, and ten-year periods.

Home Depot: When Good News Is Bad for Business (and Why It’s a Good Buy-and-Hold)

Home Depot had a decent quarter despite its headwinds. Among them is a relatively easy 2025 hurricane season. While the season produced numerous storms and wreaked widespread havoc, the U.S. mainland largely escaped the impact. The key point is that storm-related demand never materialized, as shown by the numbers. 

Even so, the company’s $41.35 million in net revenue is up 2.8% year over year and outperformed the consensus estimate by 55 basis points. The increase is due to positive system-wide and U.S. comps, as well as an increased store count.

Systemwide comps increased by 0.2% with the U.S. up by 0.1%. Comps were driven by increased ticket averages offset by a decline in traffic. Traffic declines are tied to the aforementioned storm season and to weak housing fundamentals.

Margin news is the truly weak spot. The company improved its gross margin incrementally, but offset it with increased costs. The bad news is that profits and earnings decline compared to the prior year, but there is a silver lining.

The earnings reduction is linked to weaker-than-expected sales and resulted in inventory buildup. Inventory build-up cut into profitability, but sets the company up for strength in upcoming quarters with less need to build inventory and opportunities for liquidation. 

Guidance is another area of weakness, with the revenue and earnings forecasts below estimates. The caveat for bears is that tepid guidance doesn’t offset growth and cash flow, which will be sufficient to sustain the capital return program and value gains for investors.

Critical details from the report include the balance sheet, which reflects an increase in assets offsetting liabilities and equity, with equity more than doubling, and the dividend, which is safe and reliable. 

HD: Analysts and Institutions Like This Stock But Provide Headwinds in Q4

Analysts and institutions like HD stock. The 23 analysts tracked by MarketBeat rate it as a consensus Moderate Buy, a rating that has been firm and steady for years, and institutions own more than 70% of the stock. The problem is that analysts have been trimming their targets and institutions’ positions, creating a headwind for the market.

This trend will likely persist in Q4, given the tepid release, but is unlikely to send the stock significantly lower. 

While some analysts have lowered their targets, late October and early November revisions include some increases, with the bulk of the revisions falling within a $375 to $400 price range, and the low end aligns with critical support levels.

The likely outcome is that HD will still test support, potentially wallowing near essential levels for the next few months, and then resume its long-term uptrend in early to mid-2026 as interest rate reductions spur consumer spending and housing demand. 

Where Should You Invest $1,000 Right Now?

Before you make your next trade, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis.

Our team has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and none of the big name stocks were on the list.

They believe these five stocks are the five best companies for investors to buy now...

See The Five Stocks Here

The article "Why Home Depot’s Pain Could Be a Long-Term Investor’s Gain" first appeared on MarketBeat.