Home Depot common shares have, I speculate, a 70% likelihood of trading below $36.00 within several months. The stock is pointing in a direction that would lead me to believe things are not as robust at Home Depot as the market has been led to anticipate.
My hunch is Home Depot's growth in gross margins will be impacted from events, heretofore, not significant at earlier stages of the secular, economic-cycle, but now present:
a.Higher-wages needed to attract personnel as productive as was obtained with lower-rates of pay.
b.Softening retail demand following a home-building cycle that has been slowing for 13-months; this a consequence of generational-demand having been sated in the primary as the "boomers" reach a new stage in their lives.
c.Costs associated with establishing new facilities-resulting from labor shortages, and higher demand for the materials and personnel in the retail-facilities construction industry.
d.And, a resurgent competitor, Lowe's, now offering a bit more challenge than had been the case when the company was on its knees.
For these concerns, and others, I believe it may be in the interest of the careful investor to establish what the economy portends for their company's shares by performing some due diligence on their company's prospects in such a changing economy. Remember, there was a time not so long ago, when most smart investors would not pay a share premium of p/e greater than 2/3rds the rate of growth for their company's business. In a slowing environment, much less.
I hope things work out for you, but it takes a braver soul than I to own such shares at such a lofty valuation. |
