The Home Depot, Inc. (HD), Lowe’s Companies, Inc. (LOW): The Home Improvement Industry According to These Three Metrics

A TBVPS larger than the current price of the stock means that the stock could be potentially overvalued, whereas, obviously, a TBVPS smaller than the stock could mean that the stock is potentially undervalued. Formulaically, for those who are interested, TBVPS is equal to: (Tangible Book Value – Book Value of Preferred Stock) / Common Shares Outstanding. Now, let’s look at each company’s TBVPS in relation to their stock price.

As you can tell, both are potentially overvalued. So, which could be the most overvalued? To do this, we can simply divide the TBVPS by the current stock price, where the lowest TBVPS / Price would represent the company potentially the most overvalued.

So, according to this metric, Home Depot would be the most potentially overvalued, with a very low .157 TBVPS / Price. However, Lowe’s valuation is not exactly impressive either. Still, they gain the slight edge over Home Depot here, giving them a short-run advantage.

Foolish bottom line

Obviously, there is much more at stake than these three metrics, and no company should be added to a portfolio based on solely these three things. However, these should help as a guideline when deciding between companies in an industry. My hope here was to help introduce you to a few not-so-common ways to evaluate a company that are still very useful.

So, in the end, who won? Well, The Home Depot, Inc. (NYSE:HD) won 2/3 of our “contests,” putting them in the lead, with Lowe’s winning just 1. That certainly isn’t a knock against Lowe’s Companies, Inc. (NYSE:LOW). In fact, Lowe’s did win our one short-term-based metric, whereas Home Depot won with the metrics centered more on the long term.

Still, these three metrics are not enough criteria alone to make a buy or sell decision. However, they should help educate you about three little-known metrics that can be very helpful in evaluating a company.

The article The Home Improvement Industry According to These Three Metrics originally appeared on Fool.com and is written by Michael Nolan.

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