What Investors Need From Home Depot To Justify A PE Ratio At 10 Year Highs

Home Depot (HD) faces steep expectations as it reports 4th quarter earnings Tuesday morning. Positive housing data and an expanding e-commerce business have investors setting their sights significantly higher than the Wall Street consensus. 

 

 

Contributing analysts on Estimize expect Home Depot to top Wall Street’s earnings consensus by 2 cents per share. That’s what contributors predicted last quarter and exactly what Home Depot reported. The difference this period is that Home Depot’s price to earnings ratio has become bloated ahead of the earnings release.

 

 

HD PE Ratio (TTM) data by YCharts

The graph above from YCharts shows that Home Depot’s PE ratio has been expanding rapidly since last summer. Shares are now trading at 25.5x earnings, a 10 year high. 

The price of Home Depot stock has appreciated ahead of an expected boost in profits. This quarter investors on Estimize are looking for 25% year over year earnings growth. A 25% increase to the bottom line would be Home Depot’s best quarterly result in the past year. 

The rate of revenue expansion is also projected to hit a one year high. The Estimize community is predicting 6% global sales growth.

The big picture here is that Home Depot has gotten to expensive levels when you take recent history into account. Investors expect Home Depot to have a great year and beat Wall Street’s earnings consensus handily on Tuesday. If Home Depot’s earnings don’t impress, that PE ratio could snap to the downside dragging the stock price along with it.

(Photo Credit: Mike Mozart)

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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