How High Can Lowe's Fly?

Before you go, we thought you'd like these...
Before you go close icon

Shares of Lowe's (NYS: LOW) recently hit a 52-week high. Let's look at how it got here and whether clear skies are ahead.

How it got here
A slow improvement in the economy and the housing market has helped push home improvement stores higher this year as financial results have improved. For Lowe's, revenue grew 11% in the most recent quarter, helping drive earnings per share 24% higher, a vast improvement from when we were in the depths of the recession.

The recent results have been good, but when we take a step back, the performance isn't quite as impressive. Lowe's took a big hit during the recession, like every company tied to housing, and the stock is only up 5% in the past five years. It lags behind Lumber Liquidators (NYS: LL) and Home Depot (NYS: HD) in the home improvement space. The company has only outperformed Builders FirstSource (NAS: BLDR) in the comparison below because the new construction market still hasn't picked up yet.


LOW Chart

LOW data by YCharts

So Lowe's 52-week high is really recovering from a low rather than entering uncharted territory. One of the reasons Lowe's hasn't kept up with competitors over a longer time frame is the return it gets on its investment.

Company

Return on Assets

Return on Equity

Operating Margin

Forward P/E Ratio

Lowe's7.0%10.6%7.5%14.0
Home Depot10.3%21.1%9.5%15.9
Lumber Liquidators10.0%13.3%6.3%18.5
Builders FirstSource(3.6%)(56.4%)(3.1%)N/A

Source: Yahoo! Finance.

The lower return on assets is particularly concerning when Home Depot and Lumber Liquidators have higher returns.

What's next?
As the economy continues to improve and the housing market picks up, I think Lowe's will continue to profit and should continue to hit new highs. With that said, there are better values in the space, such as Home Depot, which has a better return on assets and equity than Lowe's.

The CAPS community also thinks that Lowe's can outperform the market, giving the stock a four-star rating. I would feel comfortable in the stock because its valuation is fairly low, but I would focus my home improvement dollars on Home Depot because of its better returns.

Interested in reading more about Lowe's? Click here to add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

At the time this article was published Fool contributorTravis Hoiumdoes not have a position in any company mentioned. You can follow Travis on Twitter at@FlushDrawFool, check out hispersonal stock holdingsor follow his CAPS picks atTMFFlushDraw.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners