Should You Really Buy Home Depot Stock on the Dip?
Home Depot's (NYSE: HD) business has performed well year to date. It's on pace to grow comparable sales and profits for the current year, but that hasn't kept the stock from falling sharply along with the rest of the stock market.
Home Depot's stock price is down 35% year to date. That has brought the stock's valuation down to a price-to-earnings ratio of 16.3 based on this year's consensus earnings estimate. The inverse of the P/E gives an earnings yield of 6.1%, which is higher than the long-term U.S. treasury bond yield of 3.7%. A higher earnings yield can signal that a stock is undervalued.
While the stock looks like a good deal, investors should be careful about buying into a value trap. The economy just experienced two consecutive quarters of declining gross domestic product. Rising interest rates are a threat to a strong housing market that has propped up Home Depot's sales through the pandemic. With headwinds mounting, the stock may not be as cheap as it appears.
Source Fool.com
