Which Home Improvement Giant Should You Choose?: The Home Depot, Inc. (HD), Lowe’s Companies, Inc. (LOW)

Current Valuation Analysis

Now, my regular readers know that my rule of thumb for valuation is simple:  Double the forward growth rate.  The P/E ratio of the stock should be significantly lower than that number.

Lowe’s trades at 23 times earnings with 21% forward growth, which means it trades at just 54.8% of twice the growth rate.  Home Depot trades at an even loftier P/E ratio of 24, and I can’t really figure out why, with 14.6% average growth.  While doubling the growth rate (29.2) certainly means it is decently valued by my little rule, I don’t see why the company trades at such a premium to its peer.

Conclusion

In the three categories examined here, Lowe’s is by far the more attractive company for a long-term investment.  Unless Home Depot has a fantastic quarter, and/or Lowe’s has a particularly terrible one, I think that Lowe’s is clearly the better bet of these two industry leaders.

The article Which Home Improvement Giant Should You Choose? originally appeared on Fool.com and is written by Matthew Frankel.

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