Some investors see
as risky investments these days. However, thanks to the 5
key charts below, not only can we gain key insights into each
company's operatins but can also draw some key conclusions
regarding each as a potential investment.
Free cash flow
Home Depot generates more free cash flow than Lowe's. This allows
for more opportunities, including new store growth, store
renovations, innovations, investments in new initiatives, and
generous capital returns to shareholders.
Home Depot Free Cash Flow (Annual)
Home Depot has also generated its free cash flow at a faster
pace than Lowe's over the past five years: 50.01% vs. 40.62%. As
usual, it's a tight race with Home Depot coming out on top.
However, this is only one of the five key metrics.
When first glancing at the chart below, you will estimate that
Home Depot is at more "risk" due to more debt accumulation than
Lowe's. But there are two key points here. One, neither company
is in dangerous territory. They both generate enough cash flow to
pay off their debts. The second point will be below the
Home Depot Debt-to-Equity Ratio (Annual)
Over this time frame, Home Depot's debt-to-equity ratio has
increased 135.5%, whereas Lowe's debt-to-equity ratio has
increased 233.2%. That said, debt isn't a concern for either
company at the moment.
Revenue can be tricky because it includes sales at new stores.
However, a retailer isn't going to increase its store count
unless it's confident in its future prospects. Therefore, while
revenue can be misleading and overexcite investors at times, it's
still an important metric. Since Home Depot is a much larger
company, we'll take a look at revenue growth over the past five
Home Depot Revenue (Annual)
Once again, Home Depot is more impressive. Perhaps Lowe's has
outperformed Home Depot for the more-important metric of net
income over the past five years?
Home Depot has outperformed Lowe's in this key metric as well,
thanks to supply chain optimization, effective cost-cutting
measures, and better overall operations:
Home Depot Net Income (Annual)
Just keep in mind that Lowe's is far from a loser. It's
actually a very well run company that's likely to have a bright
future. If Lowe's were being compared to most big-box retailers
-- as opposed to Home Depot -- it would look impressive. Now,
let's take a look at that last key metric -- arguably the most
important one of all for investors.
Return on invested capital
Home Depot wins again, demonstrating a superior return on
invested capital (indicates top-tier efficiency) over the past
Home Depot Return on Invested Capital
Better yet, Home Depot expects its ROIC to improve to 24% for
the fiscal year.
The bottom line
Home Depot is clearly a better investment at this point in time.
The one edge (and it's a big one) that Lowe's has for the future
is that it's MyLowe's loyalty program has a better chance of
capturing the all-important millennials generation. This could
lead to significant changes for the key metrics above in the
future, but this isn't a guarantee; Home Depot can implement an
initiative of its own to capture this increasingly important
segment of the population. And as of right now, Home Depot is the
clear leader in the home- improvement space.
More from The Motley Fool:
Warren Buffett Tells You How to Turn $40 into
Home Depot and Lowe's: 5 Simple Charts Investors
originally appeared on Fool.com.
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