Home Depot's Feb 24 Beat Meets Catalyst but Underlying Risks Linger

What happened

Home Depot reported strong Q4 FY2025 results on Feb 24, 2026, with comparable sales snapping a streak of misses and profit beating by the widest margin in years, triggering a stock surge. This aligns with a key checkpoint in the DeepValue report, which had a WAIT rating pending FY2026 guidance updates during this earnings call. However, filings reveal that recent sales growth has been mechanically supported by the SRS and GMS acquisitions, which dilute margins and add integration complexity. Management's cost actions, like corporate layoffs, aim to offset these pressures but haven't yet proven sustainable in defending profitability. Thus, while the beat is a positive signal, it doesn't automatically resolve the core issues of margin erosion and reliance on Pro-led growth in a sluggish housing market.

Implication

The immediate price reaction reflects relief from past misses, but at 26x P/E, HD's valuation demands proof of sustained earnings acceleration beyond acquisition-driven sales. Key risks persist, including gross margin dilution from SRS/GMS and SG&A deleverage from payroll costs, which could undermine profitability if integration delays continue. Without buyback resumption, shareholder returns hinge entirely on operational execution, yet ROIC has already declined from 31.5% to 26.3% year-over-year due to acquisition financing. The Feb 24 earnings call must deliver upgraded FY2026 guidance, particularly comps rising to ≥+3% and operating margin holding ≥12.4%, to justify a shift from the WAIT rating. Until such confirmation, entering above the $350 attractive entry point offers limited upside with elevated execution risk in a rate-constrained environment.

Thesis delta

The positive quarterly results on Feb 24, 2026 could shift the thesis towards a more bullish outlook if management reaffirms or raises FY2026 guidance on comparable sales and operating margins, meeting the conditions for an upgrade from WAIT. However, without these upgrades, the thesis remains unchanged, as ongoing acquisition mix dilution and paused buybacks keep the risk-reward unattractive at current valuations.