Home Depot's Latest Earnings 'Miss' Looks More Like a Second Chance

Published November 26, 2025 | Updated November 26, 2025

Home Depot's (HD) recent quarter looks ugly... on the surface.

On November 18, the home-improvement giant reported third-quarter earnings that missed Wall Street's expectations and cut its full-year profit outlook.

Comparable sales – a critical measure for retailers – inched up just 0.2% overall year over year (and 0.1% in the U.S.). And management now expects adjusted earnings per share ("EPS") to fall about 5% this year instead of the 2% decline it was targeting earlier. The stock dropped after the release.

It's easy to look at a weak quarter and assume the investment case is broken.

We don't think that's what's happening.

Right now, Home Depot looks much more like a good business stuck in a bad housing cycle... And this could be setting up a better entry point into one of America's classic long-term compounders.

A Tough Housing Market, Not a Broken Business

If the problem here was with Home Depot, you'd expect its competitors to be doing just fine.

They're not.

Home Depot's main rival, Lowe's (LOW), reported comparable sales growth of just 0.4%, missing expectations. Management warned investors that shoppers are shying away from big-ticket projects and sticking to smaller jobs.

As we've covered in our Stock Market Trends pieces on homebuilder stocks and Trump's 50-year mortgage, the entire housing market is strained...

The Atlanta Fed's Home Ownership Affordability Monitor ("HOAM") shows ownership costs running around 47% of median income – the least affordable level in roughly 20 years.

At the same time, the U.S. is simply short on housing inventory. As my colleague Nick Koziol pointed out in his recent essay on Trump's proposed 50-year mortgage, estimates of the housing gap range from about 2 million to as many as 4.7 million homes, according to a report by Zillow.

Put it all together, and you get today's strange mix:

Affordability is terrible. Higher mortgage rates and high home prices keep buyers on the sidelines.

Supply is tight. Years of underbuilding and investor ownership mean there still aren't enough units.

Turnover is frozen. Homeowners with 3% and 4% mortgages don't want to move into a 6% or 7% loan.

That's brutal for any business tied to the housing market. When people don't move, they delay big remodels. They patch instead of replace. They decide the kitchen can survive another year.

That's exactly what Home Depot saw this quarter: fewer big-ticket projects, softer demand in cyclical categories like roofing, and pressure on margins as shoppers put off expensive work.

But that doesn't mean those projects disappeared forever.

Pent-Up Demand Is Building Up for 2026 and 2027

In our housing-focused issues, we've made two points that matter a lot for Home Depot:

The housing market is "a mess"... but it's not dead. As Brad Thomas put it when quoted in our homebuilder-stocks issue, high prices, high mortgage rates, and debt-heavy consumers made this the worst spring housing season in more than a decade. Yet the need for more homes... and more work on existing homes... hasn't gone away.

Demand is waiting on the sidelines. Even when mortgage rates spiked near 8%, inventory (measured by months of supply) never ballooned. That tells you buyers are still out there... They're just stuck waiting for better terms.

Fast-forward to what we should expect to see in 2026 and 2027:

The Federal Reserve has already started cutting its short-term interest rate. While the Fed doesn't control long-term mortgages directly, easing financial policy tends to pull financing costs down over time.

At some point, more homeowners will give up their ultralow pandemic mortgages and move for life reasons like jobs, kids, downsizing, divorce, and retirement. Every move is a Home Depot spending event.

Millions of homes built in the 1970s, '80s, and '90s will keep aging into their "everything needs work" phase: roofs, decks, HVAC systems, kitchens, and baths.

In other words, we're not watching demand die. We're watching it stack up.

When that backlog of projects finally breaks loose, Home Depot will be one of the first places the money goes.

Why We Still Call Home Depot a 'Forever Stock'

For certain companies, our ideal holding period is "forever"...

As we've said many times – direct from our founder Porter Stansberry – the surest way to build wealth in the market is to buy great businesses when they trade at good prices and never sell them. This allows the magic of compounding to work for you.

A few months ago in our Forever Portfolio, we walked through why we believe Home Depot has earned "forever" status:

It runs more than 2,300 big-box warehouses across North America, stocked with tens of thousands of products from lumber to lighting.

It serves three core groups: hands-on DIYers, professional contractors (its "Pro Xtra" division), and customers who want Home Depot's network of installers to handle the work for them.

It turns that broad customer footprint into strong economics. Home Depot has a five-year average return on invested capital ("ROIC") of 33.4%, a 31.9% gross margin, and annual free cash flow of more than $15 billion.

The company also uses its cash pile well:

Dividends. Home Depot has raised its dividend for more than a decade and currently offers an above-market yield of 2.7%, backed by billions in annual free cash flow.

Buybacks. Over time, steady stock repurchases have shrunk its share count and returned cash to shareholders.

Targeted acquisitions. Buying companies like Interline Brands (maintenance, repair, and operations products), Compact Power Equipment (equipment rentals), SRS Distribution (contractor services), and GMS (building materials) has had many benefits. It has deepened Home Depot's reach with Pro customers, strengthened distribution, and added new ways to serve the job site.

These acquisitions are great decisions that compound over time. The real payoff of something like the GMS buyout shows up over five, 10, or 20 years... as Home Depot tightens its grip on the Pro market and improves its economics.

It can weigh on results in the short term, though. As our colleagues pointed out in the Stansberry Digest issue, Red Flags From America's Real Economy:

Home Depot now sees revenue growing about 3% in the 12 months ending January 31, versus its previous outlook of 2.8% growth.

On the surface, that seems like a positive thing. But Home Depot is including a $2 billion boost from a recent acquisition (building-products distributor GMS) that wasn't previously included in guidance. That $2 billion will add about 1.2% to its annual sales growth. That means Home Depot's existing business grew more slowly than expected.

The temporary slowdown from the GMS deal was a major factor in the stock's recent sell-off. But it's also the kind of headline that can distract from the bigger picture.

Today's softer EPS is happening on top of Home Depot's long-term compounding engine...

A single quarter may look messy here and there. But over a full cycle, these acquisitions, store investments, and Pro relationships are what drive value.

Home Depot Is Learning From Walmart's Technology Playbook

One more reason we don't think a soft patch is reason to worry: The best retailers aren't standing still.

They're using technology to advance their businesses. And that includes Home Depot.

One of the companies leading the way here is discount retail giant Walmart (WMT)...

In David Engle's recent article on Walmart's partnership with OpenAI, he showed how the world's largest retailer is using AI "agents" to improve customer experience and slash logistics costs. Walmart has cut unit handling costs by 20% using smarter search and recommendations and automated fulfillment centers.

Home Depot is following a similar tech-driven playbook by:

Investing in supply-chain technology to keep shelves full and reduce out-of-stock items.

Using data and analytics to optimize pricing and promotions, especially in price-sensitive categories.

Digitizing more of its Pro relationships so contractors can order, schedule delivery, and manage jobs more efficiently.

Those kinds of investments don't fully protect Home Depot from a housing downturn. But they do help protect margins, deepen customer loyalty, and position the business to grab market share when demand comes back.

As my colleague Steven Longenecker noted in his piece on mass layoffs and AI, this is exactly the kind of environment where investing in strong, adaptable businesses matters most.

Today's economy can be tough to navigate. But that hasn't changed the basic playbook for investors: 1) pay down debt, 2) save money, and 3) own resilient assets that can survive volatility and participate in the next leg higher.

We think Home Depot fits the bill.

Bottom Line: A Strong Business in a Weak Market

We've been writing a lot about confusing crosswinds in the economy lately.

We've seen warning signs like layoffs in some white-collar sectors, right alongside record AI spending and strong service activity.

Housing sits right at the center of that confusion. On paper, the housing market looks terrible:

Affordability is near the worst levels in decades.

Builders and lenders are under scrutiny for their potential role in shortages.

Proposals like 50-year mortgages are trying to band-aid deep structural issues.

But underneath these fears, the fundamentals that matter for Home Depot haven't changed:

America is still short millions of homes.

The existing supply of homes is old and getting older.

People will keep moving, forming households, and taking on projects.

Home Depot still generates robust cash flow, has a long runway of projects to serve, and earns its place on our list of businesses you can own for years.

The latest earnings "miss" is a snapshot of a tough moment in the housing cycle... not a verdict on Home Depot's business. And for long-term investors, that's exactly when you want to pay attention.

When a "forever stock" gets knocked down by macro headlines and a temporary housing slump rather than permanent damage to its business... you don't run away.

You look for your chance to buy.

Good investing,

Tyler Jarman

Editor's note: Should investors prepare for an AI crash, or buy the dips? Analyst and True Wealth editor Brett Eversole just posted a surprising answer.

According to Brett's research, a pattern is taking shape that could defy all the worst predictions about a bust. He's calling it a "Melt Up Tsunami." And he has identified at least a half-dozen stocks that could benefit... including his No. 1 stock to own right now. He shares the ticker in this new presentation.