After years of lagging behind the broader market, Home Depot (HD) may finally be moving out of the slow lane. Shares have already posted double-digit gains this month, leaving behind worries about tariffs and sluggish top- and bottom-line growth. Optimism is building that interest rates might soon be cut, which could give a meaningful boost to Home Depot, given its close ties to the housing and home improvement markets.
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While recent macro and company-specific trends suggest the situation is moving from “bad to less bad,” the conditions may now be ripe for HD to finally gain momentum and outperform the broader market. That’s why I see shares as a Buy today — HD is at the precipice of some much-needed bullish sentiment, backed by macroeconomic shifts.
Why Home Depot Has Been Underperforming
The word that best describes Home Depot’s performance lately is “stalled.” Investing in HD has been almost synonymous with dead money. Shares are up a modest 5% year-to-date and just 12% over the past twelve months (including dividends), lagging the broader market, which gained 16%. Zooming out a bit, over the last three years, HD has risen 31.1%, still well behind the broader market’s 56% gain.
To understand this prolonged underperformance, several economic factors can be identified. First up: the curse of high interest rates and expensive credit, which hits mortgages and slows home purchases and refinancing. June data showed that private construction spending fell 6.7% compared to the same period last year. Fewer new homeowners naturally means less demand for renovations and building materials, which ultimately translates into fewer customers walking through Home Depot’s doors.
As if a weak construction sector weren’t enough, prices for building materials, logistics, and energy remain high, adding inflationary pressure and pushing consumers to cut back on discretionary spending. As a result, Q2 results continue an already long streak of lackluster growth: same-store sales rose only 1% year-over-year, signaling stagnant demand in existing stores.
Meanwhile, Home Depot has kept fixed costs high, with SG&A rising 8.7% year-over-year, along with ongoing investments in e-commerce and physical store expansion (13 new stores in Q2 2025 versus Q2 2024). This has squeezed adjusted operating margins, now at 14.8%, down 50 bps sequentially.
All this explains why the revised full-year guidance—projecting a 2% decline in EPS for 2025 compared to 2024, and a 40-basis-point contraction in operating margins due to slower revenue growth and rising costs—really dampens any sense of optimism.
Interest Rate Cuts Could Boost Home Improvement
Home Depot’s thesis is particularly sensitive to interest rates—more so than many other factors—because of its close ties to the real estate market. Recent signals from the Fed suggest that HD may finally be emerging from its hibernation.
The market has reacted positively to growing confidence—currently around an 85% chance—that rates could be cut by 25 basis points at the mid-September Fed meeting, with a potential follow-up cut in December. This follows Fed Chair Jerome Powell hinting at a more dovish stance, despite Core CPI rising 0.3% month-over-month and 3.1% year-over-year in July.
Interest rate cuts don’t instantly impact the real estate market. New homeowners, who drive most home improvement demand, typically respond with a lag of three to twelve months. That means the boost to construction activity and DIY spending may take time to show up. Given Home Depot’s current annual guidance—2.8% total sales growth and 1% comparable sales growth—the positive impact of lower rates could be underestimated if cuts arrive in Q3/Q4 2025.
Not surprisingly, HD, which usually trades with low volatility, has likely already priced in this move, given that shares have jumped 10.3% in August—its best month since September 2024, when it rose 7%, and second only to March 2021, when shares surged 13% in a single month.
Structural Advantages Give Home Depot an Edge
Building on this positive momentum, Home Depot appears well-positioned to benefit from consumers who are increasingly willing to spend on big-ticket items. However, there are a few points that give HD a slight edge over its main peers, such as Lowe’s (LOW).
Home Depot has built strong capabilities to serve professional customers more effectively, while also supporting larger, planned purchases. This enables the company to generate more revenue per transaction without the need to acquire new DIY customers. During slow housing or consumer spending cycles, these advantages are less visible because professionals are buying less, and overall demand is muted.
When the cycle improves—bringing more construction and renovations—these higher-value customer relationships begin to generate noticeable growth. This gives Home Depot a structural advantage over its peers, such as Lowe’s, which may not focus as firmly on professional customers. That’s reflected in Home Depot’s P/E of 27.6x—more than 50% above the industry average and a notable premium to Lowe’s 21.8x P/E.
Is Home Depot a Good Stock to Buy?
Wall Street remains largely bullish on Home Depot. Out of 24 analysts covering the stock over the past three months, 18 are bullish and the remaining six are neutral. Interestingly, several analysts have recently raised their price targets, including Zhihan Ma from Bernstein and David Bellinger from Mizuho.
HD’s average stock price target currently stands at $445.14, implying a potential upside of ~9% over the next 12 months.
Positioned to Win in a Lower-Rate Environment
Investing in Home Depot today is primarily a bet on the leading name in home improvement as a key beneficiary of a lower interest rate environment—not only in the near term, but throughout the year.
Against this backdrop, the company’s cautious annual guidance looks more conservative than realistic. Structurally, Home Depot remains better positioned than its chief rival to capture rising demand, which justifies its premium valuation and supports a Buy rating at this stage.