How High Can Lowe's Fly?
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.
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.
Return on Assets
Return on Equity
Forward P/E Ratio
Source: Yahoo! Finance.
The lower return on assets is particularly concerning when Home Depot and Lumber Liquidators have higher returns.
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.
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.