The Home Depot, Inc. (HD), Lumber Liquidators Holdings Inc (LL): Growth and Income Investors Should Feel Right at Home

In similar fashion to their same-store sales performance, Home Depot’s gross margin is second only to Lumber Liquidators. Of course the difference is that Lumber Liquidators Holdings Inc (NYSE:LL) is a much smaller company that focuses on higher margin flooring sales, whereas Home Depot offers a much wider variety. That being said, Lumber Liquidators Holdings Inc (NYSE:LL) reported a gross margin of just over 40%, whereas Home Depot’s gross margin came in at 34.92%. Lowe’s finished just slightly behind Home Depot with a gross margin of 34.8%, and Wal-Mart’s focus on grocery items drove their gross margin down to 24.66%.

In a seemingly recurring theme The Home Depot, Inc. (NYSE:HD) also finished the second best when it comes to expense management. The company’s SG&A expense came in at 21.87% of revenue. The only company that was more efficient in this expense line item was Wal-Mart, and given that Wal-Mart has nearly twice the domestic locations of Home Depot, the company can stretch its fixed cost across a broader base. By comparison, Lowe’s and Lumber Liquidators Holdings Inc (NYSE:LL) reported much higher SG&A expenses at 24.62% and 29.3% respectively.

One way that Home Depot leads its peers is when it comes to producing free cash flow. When comparing companies’ free cash flow production, I like to use a number that I call free cash flow per dollar of revenue. This allows investors to get an apples to apples comparison of how these companies are producing free cash flow that can then be used for share repurchases, dividend payments, or even acquisitions.

By this measure, The Home Depot, Inc. (NYSE:HD) produced about $0.07 in core free cash flow per dollar of revenue. Core free cash flow is simply a company’s net income, plus depreciation, and then minus capital expenditures. This measure helps to eliminate some of the accounting line items on the cash flow statement that may not be actual cash expenses. For comparison purposes, only Lumber Liquidators managed to match Home Depot’s free cash flow production at $0.07. Lowe’s fell slightly behind at about $0.06, and Wal-Mart’s thinner margins led to free cash flow of about $0.03.

As you can see, The Home Depot, Inc. (NYSE:HD) is anything but just your standard retailer. With the housing market continuing to improve, and management making smart decisions, growth and income investors should feel right at home.

Chad Henage has no position in any stocks mentioned. The Motley Fool recommends Home Depot, Lowe’s, and Lumber Liquidators. The Motley Fool owns shares of Lumber Liquidators.

The article Growth and Income Investors Should Feel Right at Home originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.