According jobs at Handy Dan Home Improvement Center

According
to www.corporate.HomeDepot.com, founders Bernie Marcus and Arthur Blank dreamt
of starting a retail outlet that would allow “do-it-yourselfers” to find the
products and knowledge they needed for home projects. After they were fired
from their jobs at Handy Dan Home Improvement Center in 1978, they met at a
coffee shop in Los Angles, and devised the framework for an exciting new
venture. In 1979, Bernie and Arthur opened three stores in Atlanta, Georgia
with 200 employees, and averaging weekly sales of $81,700.   In
September 1981, The Home Depot stock went public on the New York Stock Exchange
and raised $4.093 million.   By 1988,
they were included in the S&P 500 stock index.  In 1999, The Home Depot was added to the Dow
Jones Industrial Average. Today, The Home Depot has 2,283 store in three countries,
approximately 406,000 employees, and $94.6 billion in reported revenue in 2016.

 

 

Financial Overview 2016

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            The Home Depot’s fiscal year begins
normally in February until the last trading day of January.  The fiscal year 2016 ended January 29,
2017.  The Home Depot had a strong year
overall in 2016.  They have grown sales
for the 7th consecutive year. 
According to the annual report, their net sales were up in fiscal year
2016 at $94.6 billion compared to the previous year of $88.5 billion, which is
an increase of 6.4%.  The increase is
accredited to the impact of positive comparable store sales driven by increased
customer transactions and average ticket growth (Home Depot, 2017).  Gross Profit increased 6.8% to $32.3 billion
for fiscal 2016 from $30.3 billion for fiscal 2015. Gross Profit as a percent
of Net Sales, or gross profit margin, was 34.2% for both fiscal 2016 and 2015.  The Net Earnings as a percent of Net Sales,
or net profit margin, was 8.4% which was an increase compared to 7.9% in fiscal
year 2015.

            Shareholder’s enjoyed an increase on
equity in fiscal year 2016.  Dividing the
net earnings of $7,957 million by the total stockholder’s equity of $4,333 million
yields a rate of return on equity of 183.6%. 
That percentage means that Home Depot generated approximately $1.84 of
profit for every dollar that management had available to them.  Home Depot has increased its Return on Equity
for several years, which such consistency is unusual in the business world.  Home Depot is ranked the highest in Return on
Equity in the home improvement retail industry. 
With such consistency of high Return on Equity every year, Home Depot
exhibits highly skilled management which translates strength in their business,
which is very attractive to investors.

            Determining liquidity ratios of a
company from their balance sheet can give insight into the ability of company
to meet its short-term obligations as well as determining long-term debt to
equity.  When calculating the current
ratio of Home Depot, the current assets were divided by the current
liabilities.  In fiscal year 2016, the
current assets were $17,724 million, and the current liabilities were $14,133,
which translated in current ratio of 1.25. 
It has deteriorated slightly from 2015.  Next, the quick ratio is calculated by adding
cash, cash equivalents, short-term investments, and current receivables
together then dividing them by current liabilities (Citadel, 2017).  Home Depot has a quick ratio of .32 which was
slightly better in fiscal year 2016 than in 2015 at .33.  Home Depot is appears to be in excellent
order to pay its short-term liabilities compared to the home improvement retail
industry averages.  Long-term debt to
equity ratio is a method to calculate how much leverage a company has taken
on.  It is calculated by dividing
long-term debt by common equity.  In
fiscal year 2016, Home Depot had a long-term debt to equity ratio of 5.16.  This is higher and indicates Home Depot has
obtained more leverage from the year before, which indicates a higher business
risk, because the company must meet principle and interest payments on its
obligations.

About the Industry

Home
Depot belongs to the retail industry. 
The retail industry is a sector of the economy that
is comprised of individuals and companies engaged in the selling of finished
products to end user consumers (Farfan, 2017). Multi-store retail chains in the
U.S. are both publicly traded on the stock exchange and privately owned. Two
thirds of the gross domestic product comes from retail consumption.  There are 13 major types of retailing
businesses, along with the percentage of total sales each generates annually in
the U.S. retail industry, according to the most recent figures released by the
U.S. Census Bureau home improvement and garden dealers make 6% of the retail
industry (Farfan, 2017).  Retailers are
comprised of brick-and-mortar stores and non-store retailers. Home Depot
retails products out of their brick and mortar stores and website. The retail
industry is seasonal with a lot sales occurring over Christmas time.  Home Depot’s top five competitors are Lowe’s
Companies, Inc., Walmart Inc., Amazon, Best Buy, and Staples.  In the home improvement category, Home Depot
is the leader with Lowe’s Companies, Inc. following behind as the second
largest home improvement retail chain in the U.S. market.  Home Depot’s net sales in fiscal year 2016
were $94,595 million compared to Lowe’s net sales of $59,074.  Home Depot’s net earnings for 2016 were
$7,957 million compared to Lowe’s net earnings of $2,546 million.   Home Depot is considered the giant in its
category in the retail industry.

One
of the main is things changing the industry is the use of technology to sell
products. Many large retailers as well as small retailers are selling product
and services via their website. This gives consumers the convenience of
shopping from home and never stepping foot into a brick-and-mortar store. Also,
companies are using technology to collect information of customer purchases and
interests so they can better tailor products and services around customer
needs.  Retailers are dealing with a more
empowered consumer, and must be able to satisfy consumers with their wants, as
well as delivering as fast as they can.

 

Stock Ownership

            Institutional holdings make up 71%
of Home Depot stock.  The top three
institutional holders are Vanguard Group Inc., Blackrock Inc., and Capital
World Investors.  There are 1,925
holders, 829,144,512 total shares held, and the total value of holdings is
$166,931,664,601.

            Insider trade holdings make up 29%
of Home Depot stock.  The top three
insider trader holders are Craig Menear CEO of Home Depot at 231,033 shares,
Carol Tome CFO of Home Depot at 197,610 shares, and Timothy Crow Executive Vice
President (retired) of Home Depot at 88,253. 
The insider trading has primarily been selling in the last three months
with one buy and four sells. 

 

Seven
Week Stock Analysis in 2017

            A company’s stock price change is
related to “supply and demand” of buyers and sellers.  When there are more buyers than seller, stock
prices will rise.  Home Depot is
experiencing a high level of demand. In my opinion, the rise in Home Depot
stock in this period is due to the time of the year which is right after Home
Depot’s Black Friday debut and continues through Christmas.  Home Depot continues to see the stock price
increase through January thus far as they near the end of their fiscal year for
2017.  Home Depot ended the 3rd
quarter 2017 strongly with increase in net sales, net earnings, and return on
common equity, which can cause increases to stock prices due to its solid
foundation as a company.  Unemployment is
down which more people are working and contributing to the retail industry and
economy as a whole.  Recent tax
reformation by the government puts more money in the wallets consumers and
corporations. 

Seven Week Standard & Poor 500
Analysis in 2017

            Standard & Poor’s (S) is
the world’s leading index provider and the foremost source of independent
credit ratings. The S&P 500 is a stock market index that tracks the 500
most widely held stocks on the New York Stock Exchange or NASDAQ. It seeks to
represent the entire stock market by reflecting the risk and return of all
large cap companies (Amadeo, 2017).  Home
Depot’s S credit rating is “A”, and its S Outlook is stable.  The S 500 took a small dip in the seven
week period, but continues to rise.  The
index should continue into 2018 as the earning growth rate continues.  Home Depot has a beta of 1.02, which means it
is theoretically 2% more volatile than the market.  The beta of Home Depot does not deviate much
from the market rate of 1.  When beta is
higher, the stock are considered riskier, but could translates into higher returns.

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