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.