HD – Market expectations are for record-high Uniform ROA, but management may have concerns about growth, margins, and demand

• The Home Depot, Inc. (HD:USA) currently trades at a historical high relative to UAFRS-based (Uniform) earnings, with a 27.2x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may have concerns about their overall business growth, gross and operating margin pressures, and the sustainability of home improvement demand

• Specifically, management may have concerns about commodity price headwinds, continued pressures on gross margins, and increases in operating expenses. Furthermore, they may lack confidence in their ability to sustain business growth and maintain their online order mix. Also, they might have concerns about the permanent increases in compensation for their frontline associates, the sustainability of home improvement demand, and inventory seasonality. Additionally, management may lack confidence in their ability to improve their operating margins and continue to invest in their business. Moreover, they may be overstating the potential of their kids’ workshops as well as the capabilities they built with their digital assets for the consumer business. Finally, management may be concerned about the margin impact of the HD Supply acquisition, declines in their return on invested capital, and the performance of understaffed stores