Home Depot Shares in Holding Pattern

Home Depot stock was a raging bull in the 1990s as the company grew into the planet's largest home improvement chain. A share bought for less than $2 in early 1990 was worth almost $70 by decade's end, according to a story in the Atlanta Journal-Constitution. But since 2000, Home Depot stock has been mostly stuck in a holding pattern despite continued strong profit and sales growth and a booming housing market — frustrating some shareholders who think it should be performing better. After falling hard off their peak during the recession, Home Depot shares have hovered around the $35-$40 range for the past two years. They closed Thursday at $40.20. While those shares have outperformed the S&P 500 index by about 7 percent since the end of the bear market on Oct. 11, 2002, one factor vexing to Home Depot holders is the performance of archrival Lowe's. The competitor's stock didn't zoom as high in the '90s as Home Depot's but since 2000 has risen from below $25 a share to $59.06 at Thursday's close. Its stock price climbed steadily although it is down slightly from a high of $60.54 last November. "[Depot's stock price] is low in comparison to Lowe's," said shareholder Richard Fraer during Home Depot's recent annual meeting in Naples, Fla. "It doesn't seem to want to move. I don't particularly like Lowe's, but it's a little more upscale with better quality merchandise. That could be hurting Home Depot in the long run." Carol Tomé, Home Depot's chief financial officer, said recently there's a "bit of an economic overhang" on the company's stock. "Investors get spooked," Tomé said. "They think there will be an impact to our business because of rising interest rates. There's no correlation between the company's financial performance and interest rates, but there appears to be a strong correlation between interest rates and our stock price. What we have to do as a company is have a long-term view of the business and run it the best we can." After upbeat news of another solid quarter at Home Depot, several analysts promoted "buy" ratings on the company's stock last month. Still, Home Depot's stock barely budged. Home Depot insiders and associates own about 6 percent of company shares. The company said more than 30,000 Georgians own Home Depot stock — the most in any state. "The company has been overly penalized," said Walter Todd, a fund manager at Greenwood Capital Associates in South Carolina. "The underlying growth in the housing market is similar for both Lowe's and Home Depot. But Lowe's is where Home Depot was 10 years ago, and they have the ability to open more stores." Home Depot plans to open 175 stores this year and announced plans to put stores in China, though it gave no timetable. Lowe's, with plans to open 150 stores this year, has no stores outside the United States but plans a foothold in Canada. Home Depot recently began adding high-tech LG appliances to its stores, and expanded its online offerings to about 12,000 items, including higher-end home furnishings items. In the company's latest quarter, the company's average sale reached $58.25, an increase of 5.7 percent from the prior-year quarter. "This clearly shows customers are trading up to higher-quality products with additional features," said Home Depot spokesman David Sandor. "What's more, an independent consumer organization ranked more than 20 of our products as best in buys last year — further testament to the innovation and distinction we are bringing across the store." Analyst Colin McGranahan of Bernstein & Co., which has a "neutral" rating on Home Depot's stock, thinks economic uncertainty is one problem, but high energy prices, consumer debt and modest wage growth are concerns and could burst the housing bubble. "Once the concerns are over, we think Home Depot could be poised to be a very strong-performing stock," he said.