I Built A List Of Growing Companies And Home Depot (NYSE:HD) Made The Cut

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For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.

In contrast to all that, I prefer to spend time on companies like Home Depot (NYSE:HD), which has not only revenues, but also profits. Now, I’m not saying that the stock is necessarily undervalued today; but I can’t shake an appreciation for the profitability of the business itself. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

Check out our latest analysis for Home Depot

How Fast Is Home Depot Growing?

As one of my mentors once told me, share price follows earnings per share (EPS). That makes EPS growth an attractive quality for any company. Impressively, Home Depot has grown EPS by 17% per year, compound, in the last three years. If the company can sustain that sort of growth, we’d expect shareholders to come away winners.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Home Depot maintained stable EBIT margins over the last year, all while growing revenue 8.0% to US$153b. That’s a real positive.

In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.

NYSE:HD Earnings and Revenue History June 9th 2022

You don’t drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Home Depot’s future profits.

Are Home Depot Insiders Aligned With All Shareholders?

Since Home Depot has a market capitalization of US$306b, we wouldn’t expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$225m. This suggests to me that leadership will be very mindful of shareholders’ interests when making decisions!

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. A brief analysis of the CEO compensation suggests they are. I discovered that the median total compensation for the CEOs of companies like Home Depot, with market caps over US$8.0b, is about US$13m.

The Home Depot CEO received US$8.2m in compensation for the year ending . That seems pretty reasonable, especially given its below the median for similar sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Is Home Depot Worth Keeping An Eye On?

You can’t deny that Home Depot has grown its earnings per share at a very impressive rate. That’s attractive. If you need more convincing beyond that EPS growth rate, don’t forget about the reasonable remuneration and the high insider ownership. This may only be a fast rundown, but the takeaway for me is that Home Depot is worth keeping an eye on. We should say that we’ve discovered 1 warning sign for Home Depot that you should be aware of before investing here.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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