Home Depot better left for dead - Top Stocks
 
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Home Depot better left for dead

Posted Mar 21 2008, 03:26 PM by Robert Walberg
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Perhaps David Batchelder, a director of Home Depot, was inspired by the Easter theme of the resurrection when he decided earlier this week to spend more than $28 million to purchase 1.1 million shares of the home improvement retailer's stock. Batchelder now owns 1.9% of Home Depot.  Not surprisingly news of the transaction sent shares of the beleaguered retailer sharply higher in Thursday's trading.

But should you follow the lead of this insider and start accumulating Home Depot stock?  Investors often perceive insider buying as a strong (re)entry signal for beaten down stocks.  Home Depot definitely fits that description, as the company has seen its share price tumble by 27% over the past year. Nevertheless, there is no reason to hurry back into the stock -- despite the bold action taken by Mr. Batchelder.

First of all, the housing market isn't getting any better as evidenced by the weakness in the most recent housing starts data. Fewer homes being built means less commercial business for granite countertops, kitchen cabinets, floor tile, etc.  Meanwhile, the lifeblood of home remodeling projects -- home equity loans -- are increasingly difficult to come by these days. Toss in the slumping economy and reduced consumer spending into the mix and it's safe to assume that the pace of remodeling efforts will remain slow for the balance of 2008 and into 2009.

Not only does the macro picture continue to look bleak, but Home Depot is still smarting from its lack of satisfactory customer service -- a problem which has plagued the company for years and sent once loyal customers to competitors such as Lowes. You might get away with mediocre customer service during boom times, but when conditions get tough such problems really begin to make a difference when it comes to market share.  Note that Home Depot's projected that sales in fiscal 2008 would decline by as much as 5% versus a modest gain for Lowes.

So what if macro conditions remain lousy and the company continues to lose share to Lowes -- that's old news you say.  Already in the price of the stock, which is why Mr. Batchelder is taking advantage of the cheap price to load up on the stock. That might be a decent argument for buying if it were true, but it's not. Despite its problems Home Depot trades at a premium to its industry and the market - even though earnings are projected to grow at a slower rate in the future. Based on its growth prospects the stock doesn't look fairly (not to mention cheaply) priced until it hits the $21-$20 area. 

As far as I'm concerned, the insiders can buy all they want because Home Depot remains dead to me.

(Disclosure: If it isn't obvious, I don't own Home Depot stock. I don't own shares of any other company mentioned in this post.)

Comments

 

Couldn't agree more.

You sure hit the nail on the head when you say mediocre customer service,  because so many of Home Depot's people have the most rediculous attitudes I have experienced in a long, long time.   I have traded with Home Depot for several years,  and customer service has declined to a point that I now refuse to trade there.  When Frank Blake took over the reins he gave forth with lip service about how he was going to attact and fix the C.S. program,  but he needs to take a better look at what he promised,  because it's not working.  

The cheapest gasoling I could buy here yesterday was $3.09,  but I chose to drive 180 miles round trip to get what I needed from a Lowes store,  instead of trading at the Home Depot store which is only 1.2 miles from my house.  Driving at a reduce speed of 60 MPH my vehicle only made 15.3 miles per gallon,  so you do the math.  I'm 71 years old and I don't think there are enough years remaining to get me back to Home Depot to enjoy  their rude, smart mouthed and non-helpful personnel,  which happens not to be all of them,  but far too many.   It's too bad that the rotten eggs make it bad for even the good ones.    Happy Easter,   Blake !!

It's quite obvious by this article, You don't know JACK about the home improvement retail business, Kitchens, including cabinetsand coutertops are still in demand for remodeling and aren't solely tied to housing restarts. Articles like this are the reason many people are pulling out of the stock market.  Home Depots problems aren't hinged on the housing market either, they are internal, they need to work on Customer Service.

i was at home depot this weekend looking for a certain dustbuster.  they wouldn't let me on the aisle b/c they had it blocked off.  then they were all in the back, like you had to totally search to find them and they were way up high.  i said screw it and went the 2 miles to lowes, where i had no problem finding anything.

So true...HD used to be a great place but they rested on their laurels and the staff has sent it into a nose dive.  Too bad.  They have some terrific merchandise ther that they handle exclusively.  I wonder if those companies will see the handwriting on the wall and take away that exclusivity?

I went to Home Depot  to purchase counter tops, sinks, ceramic and Pergo flooring  etc. to remodel my kitchen and bath.  Three employees were standing around and I asked for help.  One of them just pointed in the direction of the tiles and kept talking to the other employees. Not one stopped to ask if I found what I wanted as I walked past them and out the door. Dont they know that female senior citizens have the $$ to spend and will go where they are treated right?  Yes, Lowes got my business.  Now my family drives past Home Depot to get to Lowes in all five cities where they live.   Thanks Home Depot for sending me to Lowes.

The Home Depot problem will continue to worsen until the CEO's there finally realize that it's time to stock their stores with quality people and not their usuall lame ideas of one or two people per shift that work in their perspective departments. This idea is standard practice to curb costs & is sppposed to stimulate profits to share holders.

There is a continuing trend that companies such as Home Depot, which is not alone, that feel that the CEO's are due to huge sums of money while their employees are worth $8.00per hour. The fact is most there at Home Depot are part timers so that they do not have to pay insurance benefits ect, ect!

Wrong Wrong Wrong!!!! Maybe it's time that America sends these companies a new message. CEO's need to curb their incomes to a more resonable figure and provide consumers with what they need. Experienced reps that know what they are doing and actually care.

I speak volumes of truth to this as I was a partime associate at one of there stores in Oceanside CA. During my short time there I learned several things. You could move an associate from lawn & garden to the appliance department as a department head & even the flooring department for that matter. Never mind that these associates didn't have the slightest clue about customer service much less sales sense.

The idea there was as long as you were a puppet for management, who were usually buisy hiding some where, and piped the corporate tune of insanity(think & feels good nonsense), you were elevated to management. An associate that was a part timer and some how was still able to out perform the full time associates in sales volume, month in and month out, was considered to be dangerous.  Hmmm.....that's some thinking there isn't it.  

Called there this weekend to ask a question of the lighting department- exceptionally rude service. They also miss order some custom doors and stuck me with that once before. I own some shares, but until someone comes in and fixes this place and returns it to its former glory, I wouldn't touch this dog with a ten foot pole.

We have been doing business with HD as a Electrical Contactor and we are continually training or explaining to their employees how to do their job because of the high turn over.  It is a concern for us to continue to do business with them since it look the economy looks grim and we have to chase customers for a potential call/appointment.

I live in Osage Beach, Missouri and until recently thought that we had the only terrible Home Depot store in the USA.  Wrong!  There seems to be many just like ours......no service.......rude clerks..........out-of-stock products, etc.  In December I asked why they did not have any humidifiers.  Answer: "That is a seasonal product."   Yes, it is and December is the correct season.  So, I went over to Lowes and bought one immediately.  Our community longs for the day that we see Home Depot saying "good-bye".

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