The Housing Market Is Stuck. Home Depot’s (HD) Q1 Is Proof

The Home Depot’s (HD) Q1 results show that the home improvement cycle is not seeing a meaningful housing-driven recovery. Even though the home improvement retailer narrowly beat expectations across the board, comparable sales remained soft, especially with U.S. comps coming in below consensus and transactions still in negative territory. Still, there was some good news, with the Pro segment continuing to show resilience and the company gaining market share in a difficult environment.

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The main issue is that large discretionary projects remain under pressure. Management’s recent commentary offers little visibility into a meaningful improvement in underlying demand anytime soon. With valuation looking more reasonable but still not cheap enough, I remain cautious on HD stock and maintain a Hold rating.

Why Big-Ticket Remodeling Remains under Pressure

Home Depot’s business model is closely tied to the cycle of existing home sales and housing turnover. After all, when a property is bought or sold, it typically involves spending on painting, flooring, appliances, and various other home improvements.

So, when existing home sales are sluggish, demand for major home improvement projects tends to weaken. Home Depot itself acknowledges this. Housing affordability and high mortgage rates have been putting pressure on the market. In this case, many Americans bought or refinanced homes with mortgage rates of 3%–4% during the pandemic. Today, moving homes may mean taking on a much higher rate, with the 30-year fixed mortgage rate at 6.35%.

Home Depot itself has guided for the home improvement market to be between -1% and +1% in FY2026, with comps between flat and +2%. This forecast only reinforces the view that the American consumer is stuck in a somewhat unfavorable cycle for big-ticket remodeling. Homeowners still have plenty of equity in their homes, but there is little incentive or confidence to undertake major projects right now.

Q1 Offered Little Evidence of an Inflection

Looking more closely at the Q1 results, Home Depot confirmed a cautious short-term outlook, especially with no indication that the trend is beginning to reverse.

It starts with a weak beat on the headline numbers and a miss on the core metrics. Earnings per share (EPS) and revenue narrowly beat expectations, but comp sales came in below consensus at 0.6% versus 0.9%. U.S. comps also missed, rising just 0.4% compared with expectations of 0.88%. For Home Depot, comps matter more than a small revenue beat because they provide a clearer view of the business’s underlying organic strength.

Home Depot and Lowe’s Are Facing the Same Macro Headwinds

When we compare Home Depot side by side with its main competitor, Lowe’s (LOW), Q1 becomes easier to frame in a more nuanced way.

Going into the earnings release, one could argue that Lowe’s had the cleaner near-term setup given its greater exposure to do-it-yourself (DIY) customers. These customers may still be willing to tackle smaller projects while staying in their current homes. In contrast, Home Depot appeared more exposed to a weaker contractor environment through its Pro segment, especially given that housing turnover remains depressed.

However, Q1 challenged part of that view. While Home Depot’s overall comps remained soft, the Pro segment actually posted positive comps and outperformed DIY, according to management on the earnings call. This suggests that the company’s Pro strategy is gaining traction even in a weak housing cycle.

The problem is that this does not yet amount to a real inflection point. Large discretionary projects remain under heavy pressure. At the same time, transactions are still negative, and management is not pointing to a meaningful improvement in underlying demand, which is the most concerning aspect.

So, compared with Lowe’s, Home Depot may not have the cleanest short-term DIY story, but it arguably has the stronger medium-term Pro platform. For now, however, both companies remain tied to a sluggish home improvement cycle.

Cheaper than Before, but Not a Bargain

Home Depot shares have been trading at a fairly undemanding valuation recently, at 19.9x forward earnings, about 11% below their historical average of 22.5x over the past five years. The problem is that this multiple still appears somewhat stretched, given the company’s modest long-term EPS growth expectations.

Consensus expects Home Depot to grow EPS by just 5% annually over the next three to five years. Applying that growth rate to the current forward earnings multiple implies a PEG ratio of 3.8x, which is far from a bargain.

The catch is that, despite the bearish momentum, Home Depot remains a very high-quality company, particularly in terms of cash generation, exposure to the Pro segment, and its structural thesis tied to the aging of the U.S. housing stock. This also supports a solid dividend, with the shares currently yielding 2.6%.

So, in a way, long-term investors could argue that the valuation has become more reasonable now that the stock is trading below its historical average.

Is HD a Buy, Hold, or Sell, According to Wall Street Analysts?

The consensus among Wall Street analysts on Home Depot remains a Strong Buy, suggesting that the stock’s recent weakness may represent an attractive buy-the-dip opportunity. Of the 25 ratings issued over the past three months, 19 are Buy and six are Hold. Even with some analysts trimming their price targets following Q1, the average target price of $379.95 still implies meaningful upside potential of 21.09% from the current share price.

A Great Business Still Waiting for a Macro Tailwind

I remain cautious on Home Depot, maintaining a Hold rating, as Q1 offered few reasons for a more euphoric reaction.

The broader demand environment still looks soft. Comparable sales were positive but came in below expectations, transactions remained negative, and management did not point to a meaningful improvement in underlying demand.

Most importantly, large discretionary projects remain under pressure, which is still the key missing piece for a real home improvement recovery. Valuation has become more reasonable, especially with the stock trading below its five-year average forward earnings multiple. However, I still do not see enough margin of safety to call the stock a clear bargain, particularly given that EPS growth expectations remain modest.

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