Have you ever watched a stock drop a seemingly terrible number and then… barely move? That was Home Depot this week, and honestly, it caught even seasoned investors off guard.
Management stepped up at the investor day, laid out fiscal 2026 guidance that missed Wall Street hopes, and the stock still closed the day almost flat. In any other rate environment that would have been a five or six percent haircut, minimum. Instead, the market shrugged and said, “Yeah, but rates are coming down.”
That, my friends, is the entire bull case in one quiet trading session.
The One Thing That Actually Matters Right Now
Let’s not bury the lede: Home Depot remains the single best way most retail investors have to play falling interest rates. Full stop.
Everything else—comps, margins, ticket versus traffic—is noise until mortgage rates crack lower in a meaningful way. The company can execute perfectly (and it largely has), but if nobody is buying or selling homes, the big-ticket professional jobs and the monster DIY projects just sit on ice.
We’ve lived through two rate cuts this year and three last year, yet the 30-year fixed still hovers above 6.5%. Housing turnover is frozen. New construction is crawling. That’s the reality that produced the muted guidance everyone fixated on.
What Management Actually Said (and Why It’s Not the End of the World)
Fiscal 2026 preliminary outlook:
- Sales growth 2.5% – 4.5% (midpoint 3.5%, below the Street’s 4.5%)
- Comparable sales flat to +2% (midpoint +1%, below +2.3% expected)
- Adjusted operating margin ~12.8% – 13% (right on consensus)
On the surface? Meh. But dig one layer deeper and the tone was surprisingly constructive.
“Households are sitting on more dry powder to use for home improvement projects than ever before, and in the past several years have tapped this equity at lower levels than usual during this period of high interest rates.”
– CFO Richard McPhail
Translation: pent-up demand is massive. People have record home equity and have been unusually stingy about spending it while rates were high. When financing gets cheaper, that equity turns into kitchen remodels, deck builds, and roofing jobs—fast.
The “Market Recovery” Scenario Nobody Should Ignore
Here’s the part that actually got me leaning forward.
Management didn’t just give the cautious base case. They sketched out what they call a market recovery case—essentially what normalized housing activity would look like:
- Total sales growth ~5-6%
- Comp growth ~4-5%
- Operating profit growing faster than sales
- Mid-to-high single-digit EPS growth
They were careful not to put a date on it, but the message was clear: once the housing market thaws, the underlying business is stronger than it was coming out of the last downturn. Aging housing stock, chronic underbuilding since 2008, and favorable demographics all support a lengthy catch-up cycle for home improvement spending.
In my experience, when a management team bothers to outline the bull case in that much detail, they usually have pretty high confidence it’s coming—eventually.
Why the Stock Refused to Die
Think about the price action for a second. Shares touched $356 in the morning—basically unchanged from where they were before the event—then drifted lower to close around $346. A 1-2% dip on disappointing multi-year guidance? That’s the market screaming “we don’t believe this is the new normal.”
Investors are forward pricing a world where the Fed gets more aggressive, or at least where bond yields cooperate and mortgage rates finally break below 6%, maybe even 5.5%. History says that once rates start moving in a material way, housing activity follows with a lag of only a few quarters.
And when housing moves, Home Depot moves—hard.
Valuation Is Starting to Look Friendly Again
Let’s talk numbers for a minute, because sometimes cold math cuts through the noise.
At Tuesday’s close near $346, the stock trades roughly 20 times next year’s earnings if we take the midpoint of the soft guidance. That’s not screaming cheap for a retailer, but it’s well below the 23-25x range it commanded when rates were collapsing in 2019-2020.
Now layer on the recovery case. If comps get back to 4-5% and operating margin expands another 100-150 basis points (both very achievable in a normal housing market), EPS could approach $19-$20 in a couple of years. At a conservative 22x multiple, that’s $418-$440—20-25% upside from here without breaking a sweat.
Even if we stay in this weird limbo for another year, the 2.4% dividend yield and ongoing buyback keep the floor reasonably high.
The Risks You Can’t Ignore
Look, I’m not blind. There are scenarios where this thesis blows up.
- The Fed pivots back to hikes (seems unlikely but not zero)
- 10-year yields rip higher on inflation or fiscal worries
- Trade tariffs hammer lumber and imported goods costs
- Consumer balance sheets finally crack after years of excess savings burn-off
Any of those would be bad for Home Depot. But here’s the thing: most of those risks are already priced in after an 11% year-to-date decline while the S&P is up double digits.
The asymmetry feels skewed to the upside from here.
Bottom Line – Patience Will Likely Pay Off
I’ve owned Home Depot shares, on and off, for the better part of fifteen years. This isn’t the first time the stock has looked dead in the water waiting for rates to cooperate. It also isn’t the first time the ultimate catalyst took longer than anyone wanted.
But when the turn finally comes—and history strongly suggests it will—the move tends to be sharp and sustained. The company’s competitive moat is wider than ever, supply chain issues are largely in the rear-view, and the balance sheet is pristine.
All we’re waiting on is for mortgage rates to do what the Fed has been promising for eighteen months.
“While housing is currently pressured, we believe the fundamental supports for long-term home improvement demand are strong and are in a much stronger position than they were at the beginning of the last housing recovery.”
– CFO Richard McPhail (again, because this line is gold)
If you’re a long-term investor with a horizon measured in years and not months, the current weakness feels a lot more like opportunity than indictment.
Home Depot didn’t suddenly become a bad business because rates stayed high longer than expected. It became a coiled spring.
And coiled springs have a tendency to release eventually.
