Home Depot (HD): Acquisitions Drive Growth as Comps Rise 1.7%

Sales up 5.7%, comparable sales up 1.7%, and a share price of $299.98 that sits 25.6% below its 52-week high of $403. Those three numbers do not fit together until you split the growth into what Home Depot built and what it bought.

The second quarter of fiscal 2026, which ended in early August, brought $47.9 billion of sales, an increase of $2.6 billion from a year earlier. Comparable sales rose 1.7%, and 1.3% in the US. The second-quarter release says the increase was driven primarily by GMS, the wallboard and building-products distributor that Home Depot acquired on September 4, 2025. GMS added $1.4 billion of net sales in the quarter. That is 54% of the entire $2.6 billion gain from one purchase.

My view is simple. Home Depot is a high-quality operator whose reported growth overstates how fast the store base is expanding, and at around 21.0 times earnings the shares are priced for a housing recovery that the company cannot schedule. I would not call that expensive. I would call it a stock that needs a catalyst it does not control.

Stripping out the acquisition

Take the quarter’s $47.9 billion and remove the $1.4 billion GMS contribution. What is left is $46.5 billion, against $45.3 billion a year earlier, a gain of about 2.6%. That is my arithmetic, not a company figure, and it is rough because other small acquisitions and new stores also sit in the total. Still, it lands close to the comparable-sales number, which is what you would expect if the acquisition explains the gap.

Look at what made up the 1.7% comp. Average ticket rose 2.8%, while the number of customer transactions fell 1.0%, according to the company’s second-quarter release on the SEC filing index. Fewer visits, each a bit bigger. Price and mix are doing the lifting, and traffic is not.

That pattern matters because ticket growth from higher prices fades if demand does not follow. A store base that sees 1% fewer transactions is a store base in maintenance mode. Customers fix a leaking roof or replace a water heater and skip the kitchen.

I keep coming back to how little the headline says about the core. Total growth near 6% sounds like a company with momentum. A reader who stops there would miss that transactions shrank.

Why acquisitions are the strategy, not an accident

This is not a one-off. Home Depot bought SRS, a specialty distributor serving roofers, landscapers and pool contractors, in 2024, and then GMS in 2025. Both businesses sell to professional contractors through local branches, and both are distribution rather than big-box retail. The logic is that the pro customer buys more often, buys in larger amounts, and cares more about delivery and credit terms than about a shopper-friendly aisle.

I read the pattern as a deliberate hedge. If the do-it-yourself customer stays quiet because mortgage rates keep home sales low, the company can still grow by buying its way into adjacent contractor spend. It is a reasonable answer to a stuck market. It also comes at a price, and I will get to that.

Compare this with a company like Coca-Cola, whose organic growth I looked at earlier is the number the market pays for. Organic growth is cleaner because it comes from selling more or charging more of what you already own. Acquired growth is real revenue, but it is a one-time step that anniversaries after twelve months. GMS closed on September 4, 2025, so the first full year of comparisons ends in the fiscal third quarter. After that the $1.4 billion a quarter stops appearing as an increment and becomes part of the base.

That timing is the first thing I would watch. Once GMS laps, reported growth drops toward the organic rate unless the company closes another deal. Anyone modeling a 6% top line into next year is modeling a number that has an expiry date.

Housing turnover holds the best-margin demand hostage

Large remodels tend to cluster around buying or selling a home. People renovate a kitchen before they list, or right after they move in. When existing-home turnover stays low, that whole category of project shrinks, and it is the one with the best margins. Management has described a frozen housing market, and I have no evidence in the numbers that says otherwise.

The company cannot fix this. It can only wait, and meanwhile keep the pros loyal and buy adjacent distributors. The stock reflects that. It trades at $299.98, near the bottom of a 52-week range that runs from $285 to $403. The current price is about 5% above the low.

A stock that fell one quarter of the way from its high while earnings held up has usually compressed its multiple. That is the case here. Home Depot’s trailing P/E is 21.0, against a five-year average of 22.6. The forward P/E is 20.7. A five-year average is a blunt comparison, because it includes a period when rates were near zero and housing was hot. Even so, I read the discount as the market saying it will not pay a premium for a business with flat traffic.

What the profit line says

Growth in sales has not carried through to profit. Trailing net income is $14.2 billion, down from $14.8 billion the year before, even as revenue rose from $159.5 billion to $164.7 billion, an increase of 3%. Gross margin slipped from 33.4% to 33.3%. The operating margin is around 13%.

A small decline in gross margin is what I would expect when distribution businesses are added, because a wholesaler earns less per dollar of sales than a retailer does. So part of the drop is mix, not weakness. I cannot split it out cleanly from the data I have, and I would not pretend to.

The quarter itself was fine on earnings. Net earnings were $4.8 billion, or $4.79 per diluted share, against $4.58 a year earlier, per the company’s release. That is roughly 5% growth in per-share profit on 5.7% growth in sales. In other words, the acquired revenue is not adding much extra profit yet, which is the question I would put to management if I could.

The next table puts the numbers side by side.

Metric	Value	Context
Q2 FY2026 sales	$47.9 billion	up 5.7%, of which GMS added $1.4 billion
Comparable sales	+1.7% (US +1.3%)	ticket +2.8%, transactions -1.0%
Price	$299.98	52-week range $285 to $403
P/E (TTM / forward)	21.0 / 20.7	five-year average 22.6
Dividend	$9.26 a share	yield 3.09%
Gross margin	33.3%	prior year 33.4%

The dividend is the paycheck while you wait

The trailing dividend is $9.26 per share, a yield of 3.09%. Against trailing EPS of $14.29, that is a payout ratio of about 65%. That is comfortable but not tiny, and it leaves a smaller cushion than a payout near 25% would.

For a holder, the dividend is what you collect during a stretch of flat comps. If the stock does nothing for two years, about 6% of the position comes back as cash. That does not make the stock a bargain, but it changes the arithmetic of waiting. I looked at the trade-off between dividend growth and high yield in another post, and Home Depot sits on the sensible side of it: a yield near 3% that is covered by earnings, not a 6% number that is being paid out of hope.

Analysts are more optimistic than I am. The average target is $391 across 23 analysts, with a range from $342 to $420, and 74% rate the stock a buy. The low target is still 14% above the current price, which tells me the group is anchored to a recovery view. I treat targets as sentiment, not as forecasts. When every analyst target sits above the price, it usually says more about how the stock was rated before it slid than about where it goes next.

Where I could be wrong

Here is the case against my caution. Forward EPS is $14.52, against $14.29 over the last twelve months, an implied 2% growth. If mortgage rates drop enough to unlock home sales, that estimate looks low, and a stock at 21 times earnings that suddenly grows earnings at 10% would rerate fast. Housing turnover does not need to return to 2021 levels. A modest thaw would improve the big-project category, and that category carries the highest margins.

The second way I could be wrong is the acquisitions. I have treated them as a way to fill a gap. If GMS and SRS turn out to deliver real cross-selling, with contractors buying more from the combined company, then the profit would show up after the anniversary and I would be too gloomy about the earnings power.

What would settle it? Two numbers. If comparable transactions turn positive for two quarters in a row, the core is healing. If gross margin holds near 33.3% while distribution grows, the mix is not hurting profit. I would want both before calling the stock cheap.

The price of buying growth

Every acquisition brings integration cost, and distribution is a lower-margin business. The company reaffirmed its guidance in August, calling for flat to slightly positive comparable sales for the year. That is management telling you not to expect a rebound in 2026. It is honest, and I appreciate it.

There is also a limit to how many contractor distributors can be bought. Each deal is a bet on one more vertical. If the next purchase is priced above what SRS and GMS cost relative to their sales, returns fall. I have no visibility into that, and neither does anyone else who is not reading the deal terms.

Short interest is only 0.9% of shares, so this is not a stock that bears are attacking. The average move around earnings has been 2.2%, and after the August 18 report the shares moved -0.1%. A stock that does not react to an earnings beat is a stock where the news was already priced.

My call, and the number to check on November’s report

Home Depot is a business I respect at a price I find fair, not cheap. I would put it on a watchlist and wait for one of two things: a price under $285, the bottom of the 52-week range, where the discount to its history would be wider, or two consecutive quarters of positive comparable transactions. Neither has happened, so I would do nothing today.

The next test is the third-quarter report. If total growth falls toward 3% while comps stay near 2%, the acquisition step is fading exactly as the arithmetic predicts, and the market will need organic growth to fill in.

Analysis and opinion only, not investment advice. Figures come from Home Depot’s filings on SEC EDGAR, its investor site, and its second-quarter fiscal 2026 results; valuation multiples are approximate and were checked on September 22, 2026.