Good Case Study On Home Depot And Lowe’s Comparison

Introduction

The fundamental goal of this particular paper is to make a financial comparison of two companies’ Home Depot and Lowe’s. Both companies are fierce competitors in the retail industry market. The paper will evaluate the growth estimate of each company in the next five years and make a comparison with the industry averages. Also importantly, the paper will offer the explanation on the various reasons as to why such variances exist between the industry standard and the company growth estimates. In addition to that, the paper will evaluate the various financial ratios, make a comparison amongst the two companies, and offer the necessary financial ratio explanation.

Company Backgrounds

Home Depot and Lowe’s are the largest companies in the retail industry as well as competitors that focus in the home improvement sector. The United States Home improvement market is estimated to have a value of 570 billion US dollars. Amongst the two firms, Home Depot operates a substantially large number of stores compared to Lowe’s. This gives the home depot a competitive advantage in the market in comparison to lowe's. According to Bloomberg industry leader board, it is evident that Home Depot has outshined Lowe’s in the past three years (Inc/The). Home Depot said to have a friendly business environment, as well as the offer, reduced prices compared to Lowe’s. In addition to that, Home Depot Supply management is efficiently managed compared to Lowe’s. Home Depot profit margin according to Bloomberg was 6.8 % compared to 4.3 % of Lowe’s in the year 2013.

Growth Estimates and Profitability

Analysis and comparison of a company growth rate and the industrial growth rate are fundamental as it enables the company to understand how the various companies in the same industry differ with the company financially.
Home depot growth estimates are estimated to be 14.52% for the next five years. Home Depot growth rate is higher than the industrial growth rate of 13.08 %. (Finance.yahoo.com) The reason for such variance can be attributed to various factors. Key amongst them is Home Depot stage in its life cycle. Home depot growth is higher than the industry since it has already its maturity stage and has already conquered the vast portion of the Home improvement market in comparison to its competitors.
Also importantly, the high growth rate than the industrial average can be attributed to the recent changes in its operation strategies and other fundamental competencies that have delivered huge margins and returns to the firm. Also importantly, the expansion to various states in the country has resulted in such high growth rates than the industry growth rates. Lastly, the fact that Home Depot has the largest market share in the home improvement market can be a factor that has contributed significantly to such high growth rates.
Lowe’s growth rate is estimated to be 18.20 % in comparison to 13.08 % industrial growth. The reason for such an enormous variance can be hugely related to the stage of Lowe’s in its life cycle. Lowe’s is in the process of expanding and growing into the Home improvement market and has higher growth potential than already matured companies such as home depot.
Lowe’s has a higher Price earnings ratio that stands at 22.63 compared to 22.45 industrial averages. This means Lowe’s investors expect more earnings in future than the industrial standards. Therefore, it would be very much profitable to invest in Lowe’s than home depot that has a price earnings ratio of 21.91, which is less than the industrial average.

Conclusion

Lowe’s stands a better chance to expand into the home improvement retail industry to reach Home Depot operating sphere. The future is still bright for Lowe’s as well Home Depot since opportunities for growth still exist in the market. However, Lowe’s must drive serious and fundamental business initiatives in order to meet its growth estimates and surpass Home Depot.

Work cited

Finance.yahoo.com,. 'HD Analyst Estimates | Home Depot, Inc. (The) Common S Stock - Yahoo! Finance'. N.p., 2015. Web. 16 Apr. 2015.
Inc/The, Home. 'HD:New York Stock Quote - Home Depot Inc/The'. Bloomberg. N.p., 2015. Web. 16 Apr. 2015.