Where Will Home Depot Stock Be in 5 Years?

Throughout its history as a public company, Home Depot (NYSE: HD) has been a fantastic business to own. Since its initial public offering in 1981, the stock has put up a total return of 2,972,000%, which would've turned a $10,000 investment into more than $297 million today.

However, the story has been more disappointing recently. Shares have returned 89% in the past five years, lagging the broader S&P 500 .

But where will this top retail stock be in five years?

Don't expect much store growth

Through its network of stores in the U.S., Canada, and Mexico, Home Depot sells products, tools, and appliances to professionals and do-it-yourself (DIY) customers. As with any retail enterprise, a top trend historically has been new store openings.

In January 1994, Home Depot operated 264 locations. Fast-forward to today, and there are 2,337 locations. This translates to a sizable nine-fold expansion.

However, in the past 10 years, the leadership team has expanded the physical footprint by only 2% in total. I suspect the same playbook will hold true over the next few years.

Looking at the big picture

Just because Home Depot won't be opening stores at a ground-breaking pace doesn't mean the situation is dire. In fact, there are reasons to believe the company will still be able to post healthy sales growth.

In the past decade, the company's revenue was up 85%. Management has focused on increasing sales volume per store. Investing in strengthening the supply chain and boosting omnichannel capabilities has helped. Expect further improvements here to continue driving same-store sales growth over the long term.

To be clear, though, Home Depot has fallen on difficult times. In fiscal 2023 (ended Jan. 28), revenue fell 2.9%, and executives expect sales growth of just 1% in the current fiscal year. The challenging macro environment, where consumers are dealing with inflationary pressures and fears of a recession, naturally pressures big-ticket purchases.

Home Depot should get back to posting healthy top-line growth. As always, the economy will become a tailwind rather than a headwind, helping to spur consumer spending and demand for Home Depot.

The industry backdrop is also quite favorable. The domestic home improvement industry is estimated to be worth $1 trillion. Based on its trailing-12-month revenue of $152 billion, Home Depot, the clear leader, commands only a 15% share. The company's strong brand recognition, vast inventory availability, and large store base should help it continue stealing market share.

The current housing stock is also encouraging for companies exposed to the home improvement industry. There is a housing shortage in this country, and the fact that the average age of a home was 40 years old (and rising) in 2021 benefits Home Depot. Consumers will need to spend money to maintain the quality of their dwellings.

Investor setup

It's easy to be optimistic about Home Depot's prospects five years from now. The company will return to revenue growth, which should support earnings gains.

The valuation must also be considered. The stock trades at a price-to-earnings ratio of 23.5, slightly above the trailing-five-year average of 21.9. Value-conscious investors might balk at this, but given the quality of the company, it still might make sense to own shares.

What's more, Home Depot is known for returning massive amounts of capital to shareholders. Just in the last fiscal year, $8.4 billion was spent on dividends, and almost $8 billion worth of stock was repurchased. Add this to the potential for share-price gains, and investors who buy Home Depot today will likely be pleased in five years.

Neil Patel and his clients have 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 .