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9 Billionaires Just Bet on Home Depot Inc Stock: Should You Join Them?

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So what accounts for the apparent enthusiasm for Home Depot? There may be a few reasons.

1. It's bigger.

Home Depot operates some 2,275 retail stores across all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces, and Mexico. Lowe's on the other hand, has 1,860 stores. Yet despite its larger footprint, Home Depot enjoyed the same sort of growth rate in U.S. comparable-store sales as Lowe's did. (In fact, at 7.6%, Big Orange actually managed a hair more growth than the 7.5% its rival saw.)

Comps are an important retail metric because they strip out the sales growth that can be achieved simply by opening more stores, so they're viewed as a better organic indicator of a retailer's health and potential. Home Depot also enjoyed greater customer traffic than did Big Blue.

2. And better.

In the first quarter, Home Depot notched almost 375 million customer transactions, a better than 4% year-over-year gain. We'll have to wait until Lowe's files its 10-Q to see just how many transactions it had by comparison -- it says they were up over 5% for the period, however -- but in all of 2015, it had 878 million transactions versus Home Depot's 1.5 billion transactions, or 473,000 transactions per store on average compared to some 660,000 transactions per store for Home Depot.

Looked at another way, although Home Depot has 22% more stores than Lowe's, its stores were conducting 43% more business than its rival's.

3. It's more profitable, too.

While the two chains have comparable gross margin rates of around 34%, when you look at operating margins and net margins, Home Depot is sprinting away from Lowe's. Big Orange's operating margin clocks in at 13.3% versus Big Blue at 8.4%, while its 7.9% net profit margin is nearly some 363 basis points higher than Lowe's.

HD Operating Margin (TTM) data by YCharts

Bringing it all home

There seems to be good reason why those big billionaire investors are knocking on Home Depot's door, and with the housing market perhaps getting ready to turn up once more, DIY investors may just enjoy some improvement in their returns if they follow them into its stock.

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*"Look Who's on Top Now" appeared in The Wall Street Journal in Aug. 2013, which references Hulbert's rankings of the best performing stock picking newsletters over a 5-year period from 2008-2013.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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