Stock and Bond Valuation on The Home Depot, Inc.

Posted: August 26th, 2021

Stock and Bond Valuation on The Home Depot, Inc.

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Stock and Bond Valuation of The Home Depot, Inc.

Question 1

P/E ratio of The Home Depot is 21.32 as of May 1, 2020 (Yahoo Finance, 2020). The P/E ratio of the company is higher than that of the average multiplier index of the home improvement retail industry at 20.4x (Yahoo Finance, 2020).  Obviously, I believe that the value of the company’s stock is overvalued based on an annual gain of 2.3% of the average value of the stock in the US market. Moreover, the market share earnings valuations of the company are attributed to a 38% increase in the price per share over the past quarter.

Question 2

The total value of the assets is $51,236,000 as of Jan 1, 2020, whereas the total liability is$54,352,000. The difference is the total equity gross at $(3,116,000) (Yahoo Finance, 2020).

Therefore, the book value of each share =

= $(2.89) per share

The obtained value is lower than the present book valueof $(2.86) per share, therefore implying the undervaluation of the value of the stock in the market (Fabozzi & Peterson, 2009).The negative impacts of the global pandemic Covid-19 seem to be a major factor that might have affected the valuation of the stock.

Question 3

Analyst Report 1

According to the analysis of stock by MarketBeat.com, The Home Depot, Inc. has received a consensus rating of buy, where the organization’s average rating scoresare 2.67 in respect to 19 buying ratings, 9 holds, and 1 selling rating. Likewise, the company’s consensus price target of $239.54 possesses a lucrative upside of 9.6% from the present price of $218.57 (Market Beat, 2020).

Analyst Report 2:

Zacks’ analysis of proprietary data shows that The Home Depot Company is presently rated as Zacks Rank 4. Additionally, the company has a VGM Score of A, thus signifying a weighted average of the individual Style Scores that helps one to focus on best practices of trading the shares conceptually. The valuation metrics indicate that the company would be overvalued. For instance, financial health, coupled with the growth prospects of HD, has stated the company’s prospectivecapacity to outperform the share earnings index in the market (Zacks, 2020). The Home Deport exhibits a Growth Score of A,a measure that would impact the price changes and earnings, thus attracting investors.

Analyst Report 3

The stock market analysis by the CNN Business indicates that more than 27 analysts have offered 12-month price predictions for Home Depot, Inc., thus showing a median target of 220.00. Coupled with a high estimate of 270.00 and a low one at 193.00; therefore, the median estimate denotes a +0.60% rise from the previous pricing of $218.68 (CNN Business, 2020).

All these stock market analysts have demonstrated a currently increased consensus for the need to invest in the company. These buy ratings for The Home Depot, Inc. has been held unchanged since April 2020. Notably, The Home Depot, Inc. upholds a buy signal which has resulted from both the short as well as long-term moving averages. For instance, the buy rating of the stock has been associated with a higher short-term average as compared to lower long-term averages of the company performance indices of between $215.73 and $193.25 (Yahoo Finance, 2020). A performance outside this average would mean that the company’s stock would be sold out.

References

CNN Business. (May 1, 2020). “The Home Depot, Inc. Analysis.” Retrieved 2 May 2020 from, https://money.cnn.com/quote/forecast/forecast.html?symb=HD

Fabozzi, F. J., & Peterson, P. (2009). “Chapter 7: Asset valuation: Basic bond and stock valuation models.”In Finance: Capital markets, financial management, and investment management. Wiley. Available in the Trident Online Library.

MarketBeat. (May 1, 2020). “NYSE: HD – Home Depot Stock Price, Forecast & News.” Retrieved 2 May 2020 from, https://www.marketbeat.com/stocks/NYSE/HD/

Yahoo Finance. (May 1, 2020). “The Home Depot, Inc.” https://finance.yahoo.com/quote/HD?p=HD

Zacks. (May 1, 2020). “Overview of The Home Depot, Inc.” Retrieved 2 May 2020 from, https://www.zacks.com/stock/research/HD/stock-style-scores