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August 18, 2021

Take the Long View on Home Depot

The open market for a public company stock often rides wild ebbs and flows of speculation triggered by factors beyond the immediate control of the public companies. An unprecedented global pandemic would certainly count among such factors.

If Wall Street initially didn’t know precisely how to price the impact of COVID when it broke out in early 2020, it soon leaned into the rising valuation, in the short run at least, of businesses primed to serve a locked-down society reinvesting in the comforts of home.

Home Depot certainly was one of those businesses. Home Depot was at first buoyed by being able to keep its stores open while many others remained shut, then by a wholesale shift in spending priorities by consumers suddenly flush with the extra time and desire to update their homes and then by a suburban housing market surge the likes of which hadn’t been seen since the sub-prime days.

Perhaps, when understanding how investors in today’s second-by-second stock-trading marketplace often take a short view, it is not entirely surprising Home Depot stock has slumped despite the retailer’s strong first-half results. Stock speculators following Home Depot see a slowing housing market and an expanding away-from-the-home consumer spend, and they expect the air to begin escaping from the pandemic-driven home improvement bubble.

To be sure, back-half comparisons to 2020 don’t project favorably for some home-centric businesses that saw their prospects inflate at rapid rates during the heart of the pandemic. That doesn’t mean all bubbles have to burst.

This week’s installment of the HomePage News special report on “Big Retail Beyond 2021” examines how Home Depot could see plenty near-term lift from enduring pandemic lifestyle shifts as it cultivates longer-term growth by serving a new generation of DIY customers — maturing Millennials who suddenly realize the ‘burbs aren’t so bad after all, especially if they’re going to be working from home at least part of the time.

Many Millennials once so eager to escape to the bustle of city living are now fleeing the city for the stability and added space of their own homes and yards. And with the steep prices for move-in ready homes, many younger family starters are zeroing in on fixer-uppers while demonstrating an appetite to advance their do-it-yourself home improvement skills.

Renovation activity for all generations of homeowners seems poised to rise in the second half and early 2022 as prices and supply of lumber and other building materials stabilize. Keep an eye, though, on the first-time homeowners. Capitalizing on their needs is not just a “now” moment for Home Depot and its rival home improvement retail operators. It will be vital to building a wide base of consumers ready to progress their year-to-year home improvement activities.

It also is a renewed opportunity for these retailers to widen the scope of their home-based merchandising selections and services in stores and online to attract and contain such a relatively untapped consumer base.

Short-sighted investors might not see such potential in Home Depot’s strong first-half comps. Take the long view.

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