Key Points
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A buyer’s market for homes in the U.S. will eventually turn the tide in Home Depot’s favor.
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A weak housing market could not deter five consecutive quarters of positive comparable store sales in the U.S.
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Driving its strategy has been the evolution of its professional contractor business model.
For the last five years or so, The Home Depot (NYSE: HD) has fallen out of favor with the stock market. It’s as though the company has become inextricably tied to the housing slowdown.
The stock’s performance tells a brutal story. Home Depot’s shares are down 21.4% over the last year, up just 3% over the last three years, and still down 8% over the past five years.
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However, what people seem to be overlooking is the business’s demonstration of success amid one of the most difficult housing markets in recent years. And that’s how the home improvement retailer could take off should macroeconomic conditions shift ever so slightly.
Home Depot logo.
Image source: The Motley Fool.
According to the U.S. Census Bureau and the Department of Housing and Urban Development, new home sales rose 7.4% in March from the previous month, and 3.3% from March 2025.
That’s why Home Depot’s first-quarter earnings for fiscal 2027 on Wednesday (May 19) could send the stock soaring.
2026 has become a homebuyer’s market
According to realtor.com’s latest weekly U.S. housing trends, new listings — a metric that shows how many new homes came on the market — rose 2.6%. This is despite falling median home prices and an increasing active inventory. With average mortgage rates holding steady across the United States over the spring, sellers seem to be interested in reengaging with home buyers.
That gives consumers a lot of choices, and an uptick in new home sales in March isn’t surprising. At a conference last month, Home Depot’s management indicated that consumer balance sheets are currently incredibly robust due to substantial increases in home equity value over the prior six years.
30 Year Mortgage Rate Chart
30 Year Mortgage Rate data by YCharts.
Therefore, consumers are not unwilling to spend — they are simply apprehensive about committing to large discretionary renovations amid the current economic uncertainty. In short, a surge in new home sales is excellent news for home improvement retailers.
The company has been working hard
Management admits that the housing market has been “frozen.” Historically, low levels of turnover in existing-home sales usually turn quickly. But over the last three to four years, the sales slump has persisted. But despite these harsh conditions, Home Depot still managed to post five consecutive quarters of positive comparable store sales in the U.S. by late 2025.
So if management delivers even modestly encouraging guidance on Wednesday, especially around housing demand, contractor spending, and consumer activity, the market could pivot quickly.
Another very important indicator of investor confidence is Home Depot’s steady commitment to increasing shareholder returns through its dividend. While Home Depot’s shares fell from their highs, the dividend has continued to climb, making the dividend yield more attractive than at almost any time in recent memory.
HD Dividend Yield Chart
HD Dividend Yield data by YCharts.
What’s at the core of Home Depot’s growth?
Perhaps the least appreciated aspect of Home Depot’s story is the evolution of its professional contractor business model. The company is creating what could become the dominant professional contractor ecosystem in the industry.
The potential size of the opportunity is immense. Home Depot estimates the professional contractor market alone totals approximately $700 billion per annum. To tap into a larger share of that spending, the management has committed significant dollars over several years to develop delivery infrastructure, outside sales teams, trade credit programs, distribution facilities, and acquire specialty businesses such as SRS Distribution, GMS Inc., and Mingledorff’s.
Each of these businesses extends Home Depot’s reach into areas including roofing, drywall, ceilings, HVAC distribution, and large job-site fulfillment.
The strategy isn’t solely focused on generating additional sales volume, but centers around providing support services that make professional contractors reliant on Home Depot.
Professional contractors generally have consistent purchasing habits, typically purchase higher volumes of merchandise, and are more likely to generate repeat business with suppliers who offer reliable delivery and efficient ordering processes. Home Depot is developing the systems necessary to become the preferred supplier. This development dramatically alters the company’s long-term growth outlook.
Home Depot stock could be mispriced
Long-term investors will be paying close attention to the upcoming earnings on May 19 — not necessarily for instant results, but to see whether the foundation for the company’s next phase of growth is already beginning to take shape.
Consequently, the market’s current perception of the stock may shift, with Wednesday’s earnings acting as the catalyst.
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Isac Simon has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool has a disclosure policy.
