Home Depot better left for dead - Top Stocks Blog - MSN Money
 
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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

 

It is a shame they knocked all the small hardware stores out of business and then when they have it all to themselves, we get what we get.  Lowes will be the same once Home Depot is gone.  I liked when the smaller stores were still around, more choices and more brands.  

Home Depot was and could be a leader if they improved customer service. If they could turn back the clock 10 years, pull out there customer service manual from that time and implimented all those policies, they would take a giant step forward. They also took a hit by firing all the org. employees that built this company, and guess where they landed....Lowes. I was a manager at HD for 8 years ending in 2003. I cannot walk into a HD and see anyone I worked with...they are all at Lowes. I also have to say, Lowes is also following down the same path, they use HD as thier business model, when HD cuts hours or staff, Lowes follows suite. Its hard to get help at Lowes as well. If either of them jsut focused on customer service, staffing and listening to customers input, and did not focus on shareholders (oh, relax) the sales would come. Make sure every customer gets greeted by a knowledgable excited employee the sales would come,...

Nardelli cut staffing for years to create more profits (not sales). Bernie Marcus, HD founder always said " Make your sale no matter what" "Treat the customer as if they were a relative" " sales cure all" We never merchandised to make margins, we did so to make sales.

Get back to the basics.."Its the Customer Stupid"

the home Depot employee are lazy......................

the homedepot employee don't help de customer.

I never have any problem finding what I want at Home Depot and employees are always polite and very helpful. Maybe in Toledo, Ohio the stores are better managed. I admit that they may not have everything but either does Lowe's. When I can't find it at Home Depot, I go to Lowe's. Lowe's never has it either and alot less. At least you have employees to talk to at Home Depot, you're lucky if you can find someone to help you at Lowe's. Good luck!!!

Its funny to read all the comments about poor and sometimes rude Home Depot customer service.  I find the opposite is true where I live (Northwest).  The people in my local Home Depot store have always been friendly, helpful, and knowledgeable.  The opposite is true about Lowe's.  The entire store is practically bare of all people (even shoppers) and those that are there may have never been around a construction site in their life!  In fact, yesterday I was there and after 20 minutes of searching for help I left and went to Home Depot! This has been the trend for about 5 years and I hope that it continues for this Home Depot store.

Robert Walberg is a moron.  He obviously has some beef with Home Depot and continues to write critical articles.  Lowes is no better than Home Depot and they share many of the same problems.  The people that complain about service at Home Depot will eventually comnplain about Lowes.  Both companies have less than desireable service, but that depends on the store in your area.  I ahve had both good and bad service at Lowes and Home Depot.  Most of the complaining is also proportional to the number of idiots out there that have little understanding of how difficult it can be to deal with Joe Public in a retail setting.  Stop the crying and stop the stupid articles.  Walberg should be fired for wasting our time!

totally correct, HD has lousy customer service! the sad thing is is that lowes could improve as well, but HD has alot more room to improve. but that means there is something there for them if they want it. i would also like to see better web sites for both of these companies, which includes showing all of the product they have in the store, a filter for NOT showing items not in stock at the store, and an integrated and improved delivery system(for store delivery, not UPS). seriously, if someone had the capital to start up a new home improvement store, or takeover, there could be so much more they could do.

They have Tony Stewart as their spokeperson and sponser a Toyota. What happen to buy American. Not these guys. They are only interested in their shareholders and care nothing for the common man. It's funny how they constantly associate themselves with losers(TONY SEWART AND THE FALCONS). I believe it's going to take a much different approach in marketing to alure new customers. Good luck  

I avoid Home Depot as a consumer and an investor.  Like Target, Best Buy, Circuit City and too many others, their strategy is to cut costs with subpar products and cheap help.  Sure, the people working there are hiding from you.  What do you want for close to minimum wage and no benefits??  It's not just on the floor, but in the offices.  How many of these companies sent their white-collar jobs "offshore," sacrificing quality and security as well?  Many.  We are doing the right thing to speak with our dollars and avoid these retailers.  Corporate boards don't work for the stockholders anymore.  They grant themselves and their cronies free stock "incentives" and outrageous pay, while running companies into the ground and hurting our economy by destroying the middle class.

While I would agree that there is still pressure on HD making their numbers I'd suggest that Lowe's has equal pressure and that they are not very far behind with declining customer service level. Lowe's wins on cleaner, better lighted retail spaces which I would imagine gets them a better share of women shoppers on a routine basis. Quite honestly, under the theory of buy low-sell high, I thought the Depot was a steal at $26.

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