The Home Depot Inc (HD)

Conclusion

The Home Depot is a United States home improvement retailer. It sells building materials, décor, lawn and garden products and facilities maintenance supplies, and it also offers installation services and tool rental. At 353.42 USD on 2026-11-09, the market capitalisation is 352.6 billion USD.

The verdict is overvalued. Today's multiples sit above their own ten-year medians: price to earnings is 24.8x against a median of 23.1x (a premium of 7.2%), enterprise value to EBITDA is 16.2x against 14.2x (14.4%), and price to free cash flow is 23.3x against 21.3x (9.8%). The DCF gives 257.93 USD per share at a discount rate of 9.61%, and the fair value from historical multiples is 329.82 USD. The fair value band runs from 235.10 to 352.65 USD with a midpoint of 293.87 USD, giving a margin of safety of -16.9% at the current price. The reverse DCF implies growth of 9.5% a year, while revenue grew 4.5% a year over five years and free cash flow per share fell 3.5% a year over the same period.

What holds the case up is a return on invested capital of 20.9% against a WACC of 8.7%, free cash flow conversion of 106.1% over the last twelve months, and interest coverage of 8.76x. What would break it is the gap between the growth the price implies and the growth delivered, the three-year EPS decline of 5.2% a year, and leverage with net debt at 2.37x EBITDA and a current ratio of 1.08.

Financial health

The colour of financial strength is green, held up by the Altman Z-score of 5.75 and interest coverage of 8.76x. The current ratio of 1.08 and net debt to EBITDA of 2.37x are neutral, and the quick ratio is 0.26. Debt to equity stands at 3.77. The Altman Z-score is in the safe zone, but the model was designed for manufacturers, and this company is a retailer. Insolvency risk: low, about 1.5% by the estimate of the Ohlson model over one to two years. The Ohlson estimate is based on figures as of 2026-01-31. Taken together, the balance sheet carries debt that is serviced comfortably, but liquidity is thin, so the company depends on steady cash generation to meet short-term obligations.

Earnings quality

The colour of earnings quality is green. Free cash flow conversion is 106.1% over the last twelve months and 93.3% on a five-year average. The accrual ratio is -2.2%, which means reported earnings are backed by cash. Stock-based compensation is 0.33% of revenue, and free cash flow after it is 14.54 billion USD. The share count fell 1.6% a year over five years, which reflects buybacks. The Piotroski score is 4 out of 9. The Beneish M-score is not available. Over the last eight quarters the company beat estimates four times and missed four times, with an average surprise of 1.1%. Next-year estimates were cut by 1.0% over 90 days, with three downward revisions and none upward in the last 30 days.

Profitability

The colour of profitability is yellow. Gross margin is 33.2% against a ten-year median of 33.8%. Operating margin is 12.4% against 14.3%, and net margin is 8.4% against 9.8%. Margin stability is 5.1%. Return on invested capital is 20.9% against a WACC of 8.7%, a given spread of 12.2%, but the five-year median ROIC is 33.6%, so returns have narrowed. Return on equity of 85.6% is inflated by leverage. The DuPont split shows a net margin of 8.6%, an asset turnover of 1.57x and an equity multiplier of 8.2x. Most of the headline return comes from the balance sheet, not from margins alone.

Growth

The colour of growth is yellow. Revenue compounded 1.5% a year over three years, 4.5% over five and 6.4% over ten. Earnings per share fell 5.2% a year over three years, rose 3.5% over five and rose 10.0% over ten. Free cash flow per share grew 4.2% over three years but fell 3.5% over five and rose 7.5% over ten. Revenue grew in nine of the last ten comparable years. Consensus expects earnings per share growth of 6.2% for next year, a figure the company has not yet delivered on a sustained basis.

Valuation

The colour of valuation is red, because the verdict is overvalued. Price to earnings is 24.8x against a ten-year median of 23.1x, a premium of 7.2%. Enterprise value to EBITDA is 16.2x against 14.2x, a premium of 14.4%, and price to free cash flow is 23.3x against 21.3x, a premium of 9.8%. Price to book is 21.2x against a median of 95.7x, a discount of 77.8%, but that median rests on seven data points. The DCF gives 257.93 USD per share with a discount rate of 9.61% and a terminal share of 53.4%. The reverse DCF implies growth of 9.5%, against 4.5% revenue growth and -3.5% free cash flow per share growth over five years. The dividend yield is 2.6% and the payout on free cash flow is 61.1%.

Risks

Each weak number carries its own risk. Leverage at 2.37x EBITDA and a current ratio of 1.08 leave little room if sales slow, because debt would need to be refinanced from cash flow. A falling return on invested capital, from a five-year median of 33.6% to 20.9% today, would narrow the spread over the 8.7% WACC. Three years of EPS decline, at -5.2% a year, cut against the valuation premiums. The Beneish M-score, the debt maturity schedule and revenue by segment are not available, so the analysis cannot test earnings manipulation or the timing of refinancing. The fair value band is an order of magnitude built on fixed assumptions, including a 5% equity risk premium and capped growth, and is not a price target.