Don’t Try to Catch Home Depot’s Falling Knife Just Yet

In this Monday, Jan. 27, 2020 photo a passer-by, below left, walks toward an entrance to a Home Depot store location, in Boston. Home Depot Inc. reports financial results on Tuesday, Feb. 25. (AP Photo/Steven Senne)

Home Depot (HD) made a fine mess of the markets.

While it’s down $20 at the moment, it could fall even further. That’s because there’s no clear support until Home Depot gets to about $285 a share, which is another $12 lower.

And the last thing you want to do here is to catch a falling knife.

Sure, the company beat earnings expectations with EPS of $3.30, beating estimates by two cents. Unfortunately, revenue of $35.8 billion was lower than expectations for $36 billion.  Comparable sales were also down by 0.3%, which was below expectations for a gain of 0.3%.

Worse, “The company guided for per-share earnings to decline by a mid-single-digit percentage in fiscal 2023, while analysts had expected earnings per share to be largely flat. Home Depot expects full-year sales growth to be flat, but Wall Street was looking for a slight uptick,” as noted by Barron’s. That coupled with higher inflation and rising interest rates, with an overvalued housing market could weigh on the stock even more.

We wouldn’t buy the HD stock just yet.  In fact, we’d wait until it bottoms out.  We’d wait for confirmation that it has bottomed out.  And then, we’d consider buying the stock, and collecting its new quarterly dividend of $2.09 as we wait for it to recover.

Right now, HD is a falling knife.