Rapid urbanization, inflating income levels, and changing living standards are strengthening the home improvement market. Also, the increasing need for remodeling and upgradation activities of homes is expected to boost the market. Given the industry’s rosy prospects, investors could look into fundamentally strong home improvement stocks, The Home Depot, Inc. (HD), Flexsteel Industries, Inc. (FLXS), and Lowe's Companies, Inc. (LOW), for explosive returns.

The global home improvement services market is expected to grow at a CAGR of 4.6% until 2028. The increasing need for remodeling homes, the rising adoption of smart homes, and the growing requirement for energy-efficient living spaces represent some of the key factors driving the home improvement market.

Furthermore, the U.S. DIY home improvement market is expected to grow at a CAGR of 4.7% until 2027. The primary driving factor of the market’s growth is a greater emphasis on DIY home improvement projects for personalized interior designing. With the increase in the disposable income of individuals, they are more willing to invest in these projects.

Additionally, the global smart home market is growing due to AI integration, widespread smartphone usage, and the adoption of IoT and smart voice recognition technologies. Despite initial disruptions from the pandemic, there’s increased demand for smart entertainment products. The global smart home market is expected to grow at a CAGR of 27.1% until 2030.

With these favorable trends in mind, let's delve into the fundamentals of the three best Home Improvement & Goods stocks, beginning with the third choice.

Stock #3: The Home Depot, Inc. (HD)

HD operates as a home improvement retailer. It sells various building materials, home improvement products, lawn and garden products, and décor products, as well as facilities maintenance, repair, and operations products.

HD’s trailing-12-month EBIT margin of 14.51% is 93.6% higher than the 7.49% industry average. Its trailing-12-month asset turnover ratio of 2.02x is 104.4% higher than the 0.99x industry average.

For the fourth quarter that ended January 28, 2024, HD net sales came in at $34.79 billion. The company’s gross profit came in at $11.51 billion. Its net earnings came in at $2.80 billion and EPS stood at $2.83.

HD’s revenue is expected to be $36.81 billion for the fiscal first quarter ending April 2024. Its EPS is expected to be $3.63 for the same quarter. It surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.

The stock has gained 24.7% over the past nine months to close the last trading session at $362.57.

HD’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

HD also has a B grade for Stability, Sentiment, and Quality. It is ranked #21 out of 56 stocks in the B-rated Home Improvement & Goods industry.     

To access additional ratings for HD’s Growth, Value, Momentum, click here.

Stock #2: Flexsteel Industries, Inc. (FLXS)

FLXS operates as a manufacturer, importer, and markets of upholstered furniture for residential and contract markets in the United States. It provides upholstered furniture, such as sofas, loveseats, chairs, reclining rocking chairs, swivel rockers, sofa beds, convertible bedding units, occasional tables, desks, dining tables and chairs, kitchen storage, bedroom furniture, and outdoor furniture.

FLXS’s trailing-12-month ROTA of 5.67% is 36.7% higher than the 4.15% industry average. Its trailing-12-month asset turnover ratio of 1.50x is 51.6% higher than the 0.99x industry average.

During the second quarter that ended December 31, 2023, FLXS net sales increased 7.5% year-over-year to $100.11 million. Its gross profit rose 38.6% from the year-ago value to $21.95 billion. Also, the company’s net income and earnings per share came in at $3.05 million and $0.59, increases of 7% and 9.3% year-over-year, respectively.

Analysts expect FLXS’s EPS to grow 100% year-over-year to $0.56 for the first quarter ending May 2024. The company’s revenue is expected to increase 3.1% year-over-year to $102.11 million for the same quarter. Moreover, the company has an impressive earnings surprise history as it surpassed the consensus EPS and revenue estimate in three of the four trailing quarters.

Shares of FLXS have gained 93.6% over the past nine months to close the last trading session at $34.39.

FLXS’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

The stock has an A grade for Growth and a B in Momentum and Sentiment. It is ranked #12 in the same industry. 

Beyond what is stated above, we’ve also rated for Stability, Value, and Quality. Get all FLXS ratings here.

Stock #1: Lowe's Companies, Inc. (LOW)

LOW is a leading U.S. home improvement retailer offering a broad range of construction and renovation products. It caters to both professional customers and homeowners through its stores, website, and mobile apps.

On January 10, 2024, LOW launched MyLowe’s Rewards, a loyalty program for DIY customers offering savings and exclusive perks. Members can use the MyLowe’s Rewards Credit Card to save 5% on eligible purchases daily. The program includes a three-tiered structure with benefits such as points, free gifts, and exclusive offers, expanding nationwide in March.

Its trailing-12-month EBIT margin of 12.79% is 70.7% higher than the 7.49% industry average. Its trailing-12-month net income margin of 8.49% is 78.5% higher than the 4.76% industry average.

In the third quarter ended November 3, 2023, LOW generated net sales of $20.47 billion. The company’s operating income and net earnings amounted to $2.70 billion and $1.77 billion, up 191.8% and significantly year-over-year, respectively. Also, its EPS increased significantly from the prior-year quarter to $3.06.

Street expects LOW’s revenue and EPS to be $18.38 billion and $1.68, respectively, for the fourth quarter ended January 2024. The company surpassed the EPS estimates in each of the trailing four quarters.

The stock has gained 10.3% over the past three months to close the last trading session at $225.51.

LOW’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.

LOW has a B grade for Growth and Quality. It is ranked #11 in the same industry.  

Click here to see the additional POWR Ratings for LOW (Value, Momentum, Sentiment, and Stability).

What To Do Next?

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HD shares were trading at $361.54 per share on Wednesday afternoon, down $1.03 (-0.28%). Year-to-date, HD has gained 4.33%, versus a 4.18% rise in the benchmark S&P 500 index during the same period.

Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.

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