Home Depot vs. Lowe’s Stock: Which Is a Better Investment?
Written by
James Holbach
Edited by
Nicholas Morine
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When it comes to home improvement, there are two names that might immediately spring to mind — retail giants Home Depot and Lowe’s have dominated this industry for years. As an investment, home improvement stocks offer exposure to the retail sector, as well as to real estate and homebuilding. When business is booming and construction is happening, these stores will reap the benefits, and vice versa.
Of the two, which is the better investment? Let’s take a look.
Financial Strength
While companies of this size are generally considered to be safe investments, that doesn’t mean they are all on equal footing. It’s important to assess their financial strength in both the short and long term. One useful measure is the current ratio, which indicates a company’s ability to meet its short-term liabilities. As an investor you’ll want to see a current ratio of at least 1 or higher. Over the trailing twelve months (TTM), HD has a current ratio of 1.35 versus 1.23 for Lowe’s, per GuruFocus.
Edge: Home Depot
Valuation
What you pay for a stock is just as important as its quality. Even for a great business, if you overpay, you are likely to see mediocre returns. The price to earnings (P/E) ratio is the most commonly used valuation measure for publicly traded stocks — the lower the ratio, the cheaper a stock is. Home Depot has a TTM P/E ratio of 23.7 as of March 2024, per Companies Market Cap, while Lowe’s is trading at roughly the same — a fraction of a cent lower.
Edge: Neither
Dividend Yield
A company’s dividend yield essentially measures the size of its dividend against the total market value of the company — the higher, the better. HD has a dividend yield of 2.21% while LOW has a dividend yield of 1.84, according to MacroTrends.
Edge: Home Depot
The Winner: Home Depot
While Home Depot stock is ever-so-slightly more expensive than Lowe’s stock on a price-to-earnings basis, its stronger financial position and higher dividend yield make it the better choice to invest in right now. Things can always change, so remember to review your stock holdings on a frequent basis along with a qualified financial advisor.
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