Home Depot sells off after earnings miss and guidance cut, resetting near-term expectations around a premium franchise

What happened

Home Depot shares are plunging after the company reported quarterly earnings below Wall Street estimates and reduced its full-year earnings guidance. The reset comes on top of an already full valuation (~27x TTM P/E as of late September) that assumed modest growth and stable comps, so the disappointment is being punished disproportionately in the short term. The guidance cut signals that near-term profit growth will be weaker than previously expected, complicating the narrative of gradually improving demand and clean integration of the SRS/GMS distribution assets. Importantly, the long-term strategy around building out the Pro ecosystem, omnichannel capabilities, and specialty distribution remains intact, supported by strong free cash flow and a manageable balance sheet. In effect, the stock is undergoing an expectations and multiple reset rather than a fundamental business model change, with the market now demanding clearer evidence of comp and margin stabilization before re-rating the shares.

Implication

For existing shareholders, the selloff is painful but looks more like an expectations reset than a structural break in Home Depot’s competitive position, arguing against a forced sale unless you have a low risk tolerance for further estimate cuts. New money should be cautious about treating this as an automatic buying opportunity: the stock may need time to find a new valuation floor as analysts revise numbers and sentiment digests weaker guidance. The key watch items from our prior work—comparable sales trends, Pro outgrowth, gross margin mix amid SRS/GMS integration, and housing/interest-rate indicators—now carry more weight, as another weak quarter could shift the risk/reward toward a more negative stance. If the pullback ultimately brings the multiple closer to peers while comps and margins stabilize, the setup could improve toward a more attractive entry point, but that requires confirmation in upcoming quarters. Until then, the appropriate posture is patience: HOLD the name, emphasize dividend and balance-sheet strength, and wait for either clearer operational traction or a deeper valuation discount before adding exposure.

Thesis delta

Our previous HOLD rating rested on a view of modest but stable growth and a premium valuation that fully reflected Home Depot’s high-quality fundamentals, with downside cushioned by strong free cash flow and liquidity. The earnings miss and downward revision to full-year guidance reveal softer near-term profit momentum and higher execution/macro risk than we had baked in, and they increase the importance of monitoring comps, margins, and SRS/GMS integration for any further slippage. We maintain HOLD, but with a longer evidence-gathering period and a greater emphasis on whether the business can re-base earnings without additional cuts; any multiple compression from the selloff partially offsets the weaker outlook but is not yet compelling enough to upgrade to BUY.