Investing in the stock market is one of the best ways people can grow their wealth. Over many decades, the results that the S&P 500 can produce can be truly extraordinary.
But there’s one particular company that stands out to investors more than anything other than the overall market. This has been top since its IPO in 1981 Retail inventory has generated a total return of 3,000,000%, which would have turned a $1,000 investment into an astounding $30 million today. This is an incredible win.
Read on to learn which company I’m talking about, its rise over the years, and whether it’s a smart investment today.
Dominates the industry
Investors should understand that no technology or internet company is such a big winner. The company operates in the boring home improvement sector. It is Home Depot (NYSE:HD)the heavyweight of the industry.
This business has hardly changed since the beginning. Home Depot sells various materials and tools to DIY and professional customers to assist them with home improvement projects. Its current scale is truly remarkable. As of February 20, there were a total of 2,335 stores, averaging over 100,000 square feet. Even more impressive is that there is a Home Depot location within 10 miles of 90% of the US population, demonstrating its extensive reach.
However, that wasn’t always the case. About 30 years ago, the company only had 264 stores open. And in fiscal 1993, Home Depot reported sales of $9 billion, a fraction of the roughly $153 billion it generated in the previous fiscal year.
The early leadership team made the right decision that the best strategy was to rapidly expand the store footprint throughout the United States. Over the following decades, Home Depot continued to expand its sales base and profitability, which undoubtedly helped drive those excellent shareholder returns.
Home Depot has become such a financial success story that it is now able to return incredible amounts of capital to investors. Operating cash flow of $21 billion in fiscal 2023 allowed management to pay $8 billion in dividends Repurchase $8 billion of outstanding shares. Such capital allocation decisions are commonplace these days.
Should you buy Home Depot shares today?
Buying stocks based on their historical performance is not necessarily a sound strategy. Companies are maturing and their growth opportunities are beginning to dwindle. I think this is definitely the case at Home Depot.
To be fair, though, the stock has doubled in the last five years including dividends, which is a solid gain. But shares are 16% below their all-time high.
Given its current size, it can be assumed that sales growth will be lower in the future. This is just a natural development. The struggles have been real lately too. Sales fell last year and are expected to rise just 1% in fiscal 2024. Consumer demand for major renovation projects is simply not as robust given the current uncertain macroeconomic environment characterized by higher interest rates and inflationary pressures.
But I still believe Home Depot is a worthwhile investment candidate for those who can keep an eye on it over the next five years. The company has competitive advantages that work in its favor, namely its size and brand recognition. Even smaller rival Lowes cannot compete with Home Depot in this area. Additionally, the company operates in a huge industry, giving it the opportunity to steal market share from smaller stores in a fragmented market.
Investors who can overlook short-term headwinds should consider buying stocks. Home Depot’s returns won’t resemble those of the past, but they could give your portfolio a boost.
Should you invest $1,000 in Home Depot now?
Before you buy stocks at Home Depot, consider the following:
The Motley Fool Stock Advisor The analyst team has just identified what they think this is The 10 best stocks so investors can buy now…and Home Depot wasn’t one of them. The ten stocks that made the cut could deliver huge returns in the years to come.
Stock Advisor provides investors with an easy-to-follow roadmap to success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks per month. The Stock Advisor The service has more than tripled the returns of the S&P 500 since 2002*.
Check out the 10 stocks
*Stock Advisor returns from April 8, 2024
Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in Home Depot and recommends them. The Motley Fool recommends Lowe’s Companies. The Motley Fool has a disclosure policy.
“1 Stock That Turned $1,000 into $30 Million” was originally published by The Motley Fool