Home Depot (NYSE:HD) concluded Friday's trading session at $338.87, maintaining a trailing price-to-earnings (P/E) ratio of 24.1—a 36% premium compared to Lowe's (NYSE:LOW) P/E of 17.6. However, recent housing market data is casting doubt on the sustainability of this valuation gap.
Both home improvement retailers reported identical first-quarter comparable sales growth of 0.6% and forecast fiscal 2026 comparable sales to range from flat to up 2%. Home Depot's U.S. comparable sales rose 0.4%, with currency movements providing a roughly 55 basis point boost, implying constant-currency growth was nearly flat.
The investment thesis for Home Depot's premium centers on its Pro platform and potential market-share gains. In the first quarter, Pro comparable sales outperformed DIY, though large discretionary projects continued to face headwinds. CEO Ted Decker struck a cautious tone on demand, stating in May, "We're not looking at a marked improvement in underlying demand." He attributed stronger second-half comparable sales expectations to typical storm activity.
New government data for June revealed a 0.2% decline in single-family housing starts to an annual rate of 895,000, while permits fell 2.4% to 871,000—the lowest level in ten months. Financing conditions have also tightened, with the average 30-year mortgage rate climbing to 6.55%, its highest in eleven months. Pending home sales dropped 5.4% in June, and the NAHB confidence index fell to 34 in July from 36, with 37% of builders reducing prices.
Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, noted that any policy boost will take time to materialize and anticipates residential investment will continue to pose a modest drag. Home Depot's stock slipped 1.29% last week, slightly outperforming Lowe's 1.37% decline and the S&P 500's 1.55% drop.
The next major test comes on Friday, July 24, when the Census Bureau releases June new-home sales data at 10 a.m. EDT. Stronger sales figures would support Home Depot's premium, while a disappointing report would intensify focus on execution and Pro market-share growth. Home Depot's second-quarter results are expected on August 18.
Key risks include a potential drop in mortgage rates that could accelerate major project demand, while persistent contractor weakness may continue to weigh on sales, margins, and the valuation premium.
