[ad_1]
Home improvement retail chain shares Lowe’s (NYSE:Low) At the time of writing, it is trading close to its 52-week high. Considering that the company’s earnings per share (EPS) are also at historically high levels, it seems appropriate that its stock price is so high.
However, there are reasons to wonder whether this will continue in 2024. On February 27, Lowe’s reported 2023 financial results and gave a financial outlook for 2024. The company expects sales to decline 2% to 3% year-over-year in 2024. coming year. Management expects full-year earnings per share of $12 to $12.30, which would represent a decline of 7% to 9%.
Here’s what investors need to know and how they should respond, based on Lowe’s guidance for 2024.
The year ahead for Lowe’s
For home improvement companies like Lowe’s, sales are often tied to the value of the home. To measure changes in home values, investors can look at the Case-Shiller Home Price Index. You don’t necessarily need to know anything other than the basics: Up means higher house prices; A decrease means lower house prices.
The chart below shows Lowe’s quarterly sales growth compared to the Case-Shiller Index. Over the past 20 years, sharp increases or decreases in the index have often been associated with sales growth or decline at Lowe’s.
It’s not perfect. But there is a connection between Lowe’s and the housing market.
CEO Marvin Ellison said at the start of the 2023 fourth-quarter earnings call: “[Do-it-yourself] Customers continue to be cautious about home improvement spending. “
Ellison left no doubt as to why DIY customers are wary: “Existing home sales are at levels not seen in nearly 30 years, and even with mortgage rates falling, two-thirds of homeowners are still locked in with rates below $4. %, which may keep many on the sidelines. We expect DIY demand to remain under pressure due to these factors.”
A look at Lowe’s competitors reveals problems across the industry. The Home Depot Same-store sales are expected to decline 1% in 2024.flooring expert Flooring and Decoration Same-store sales are expected to see a more pronounced decline of 2% to nearly 6%.
Lowe’s shares are up about 14% in 2023 (when dividends are reinvested), but that’s underperformance S&P 500 Index. Since the company expects sales and profits to decline in 2024, I wouldn’t be surprised if it underperforms again in the year ahead. The stock price may trade sideways for a while.
Think about the big picture
Many financial advisors recommend budgeting 1 to 2 percent of your home’s value each year for repairs and maintenance. There may be years when not as much needs to be done and the homeowner won’t spend as much money. But repairs and maintenance are part of home ownership. And decorations are frequent.
Such is the elasticity and longevity of home improvement spending. Lowe’s may face declining sales in 2024. But the business has not been disrupted or left in the past. Lowe’s and other companies will meet consumer demands for decades to come.
When looking for stocks worth buying and holding, the resilience of the home improvement category is a good reason not to sell Lowe’s stock too hastily.
As for the stock’s valuation, its price-to-earnings (P/E) ratio is about 18. The chart below shows that this represents a significant discount to its 10-year average valuation.
With projections for 2024, Lowe’s stock isn’t my strongest candidate to beat the market in the coming year. That said, its lower valuation already reflects its lackluster guidance. Cheaper valuations mitigate further downside risks.
Given that the business should continue to enjoy long-term consumer demand, Lowe’s stock shouldn’t be abandoned today – shareholders should feel good about continuing to hold on to it for the long term.
The real estate market has downturns at times. But it’s an integral part of the economy that Lowe’s should be able to profit from for years and decades to come.
Should you invest $1,000 in Lowe’s Company now?
Before buying Lowe’s Company stock, consider the following factors:
this Motley Fool Stock Advisor The analytics team has just identified what they believe is 10 Best Stocks For investors to buy now… Lowe’s is not one of them. The 10 stocks selected could generate huge returns in the coming years.
stock advisor Provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month.this stock advisor The service has more than tripled the S&P 500’s returns since 2002*.
View 10 stocks
*Stock Advisor returns as of March 11, 2024
Jon Quast is in the Flooring and Decorating Department. The Motley Fool holds a position and recommends Home Depot. The Motley Fool recommends Lowe’s. The Motley Fool has a disclosure policy.
Lowe’s management forecasts sales and profits to decline in 2024. What should investors do now?Originally published by The Motley Fool
[ad_2]
Source link