I am neither a "bull' or "bear." I simply want to illustrate to you what in effect you are doing at the time you purchase stock in a business. After all, when you purchase one share, you are in effect willing to buy them all at that price.
As an investor, I would like a fair return on my equity at the current market price of the shares I am considering. The market capitalization is all of those shares (x) the current stock price. I cannot get a fair return on HD's common equity at current prices, because I believe the business could be reasonably duplicated at less than 1/2 its market capitalization.
By way of example,take a look at a leading competitor. Lowe's common stock is approximately 50% less expensive based on a market-capitalization versus Home Depot's. Yet I think a good manager could buy Lowe's business, and with the money saved spent on acquiring Home Depot's business, capture existing business in new territory, buy existing regional concerns in the same business to expand, and create a franchise greater than Home Depot's.
The opportunity for doing so at a truly discounted value presented itself grandly 6 months ago.But now that the Street realizes Lowe's is on the mend, its market-cap. has crept up to reflect that a bit also, although with little recognition by Home Depot's market-cap that there is now real competition on the block. Its cap. still remains too high.
So, I suspect, you will see a meeting somewhere in the middle between the 2 companies market-cap. valuations: Lowe's advancing, and Home Depot's declining, even while both businesses continue growing, although one demonstrably faster.
Make no mistake, I do not own common shares in either; it is not the type of business I want to own at this stage of the economic cycle, but Home Depot's common shares reflect absolutely nothing but blue- skies indefinitely.
The best to you...
Terrence |
