News January 7, 08:53 Eastern Time
quotes.freerealtime.com
Home Depot Was Top Georgia Stock of 1990s
Jan. 6 (The Atlanta Journal and Constitution/KRTBN)--Think of Home
Depot as a money machine.
During the last decade, the company's shares appreciated 3,701.2
percent, or at an annual rate of 43.8 percent.
That made Home Depot the best performer among Georgia-based companies
during the '90s.
Nationally, Home Depot was the 13th-best performer among members of
the benchmark Standard & Poor's 500-stock index.
Only Dell Computer, EMC, Tellabs, Best Buy, Microsoft, Charles Schwab,
Sun Microsystems, Applied Materials, MCI WorldCom, Amgen, Oracle and
Intel were better.
Five other Georgia stocks outperformed the S&P 500 during the decade.
They were AFLAC, Scientific-Atlanta, Synovus Financial, Coca-Cola and
SunTrust Banks.
In the '90s, investors were willing to pay premium prices for the
shares of rapidly growing companies.
"In bull markets, stocks are going up primarily because price-earnings
ratios are expanding," said market strategist Phillip M. Larkins of
Legacy South, an Atlanta-based money management firm. "As a general
rule, for the typical stock in the '90s, its total return was maybe
one-third earnings growth and two-thirds P/E expansion.
"In that type of market environment, the stocks that are generally
going to outperform are going to be the growth companies."
Home Depot has been able to consistently grow its profits at an annual
rate of 30 percent or more.
"Because of that, the market has rewarded Home Depot with a very
liberal expansion of its price-earnings ratio," Larkins said. The
retailer's shares are now trading at 62.3 times estimated earnings of
99 cents a share in the fiscal year ending this month.
What are the chances of Home Depot's stock repeating its phenomenal
performance this decade?
"Fairly remote," according to Larkins. "It's hard to duplicate that
relative performance decade in and decade out."
For one thing, Home Depot is much larger than it was a decade ago.
"It's harder to grow at the same rate as you get larger," Larkins
said. "If you're a company with $1 billion in sales, it's easy to get
up to $2 billion in sales. But it's more difficult to get from $50
billion in sales to $100 billion. The law of mathematics weighs you
down as you get larger."
Having said that, Larkins said he likes the shares of Home Depot and
those of the five other Georgia companies that have outperformed their
peers in the S&P 500.
"I wouldn't buy them expecting to duplicate their performance of the
'90s," Larkins said. "But all six will be good long-term investments."
By Robert Luke
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