Investing has no style points.
Sometimes the best investment is a company with a simple business model.
Home Depot has been a 10-bagger in the past decade.
Here’s why:
Focusing on “Professional” Customers
The company doubled down on its efforts on its “pros”.
This group are largely professional renovators, contractors, etc.
They are less price sensitive and are very loyal.
By focusing on this group, Home Depot is much more efficient per-store/per-square foot.
This is evident when we compare them with their competitor: Lowe’s.
In 2010, Home Depot made $30m per store while Lowe’s made $28m.
Fast forward to 2020, Home Depot is making $58m per store while Lowe’s making $45m.
Home Depot sales per store nearly doubled!
Clear Digitalization Strategy
Home Depot was an early adopter of digitalization.
Prior to COVID-19, its online sales grew >20% each year.
In 2020, it had a big jump of 80%!
Management has also to investing $11 billion over the next few years to double down on omnichannel experience.
Strong Company Culture
Home Depot also has a strong company culture.
Similar to Costco, they have a reputation for treating customers well.
In retail, happy and fairly paid staff are important.
After all, they’re the ones facing your customers.
A good experience encourages repeat purchases.
Great Capital Allocation
Management are also good stewards of capital.
With a clear focus on reinvesting when return on invested capital (ROIC) makes sense.
And buying back shares when it is value accretive.
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