Last update on 2024-06-05

Home Depot (HDI.DE) - Piotroski F-Score Analysis for Year 2023 (Final Score: 5/9)

Explore the Piotroski F-Score Analysis of Home Depot (HDI.DE) for 2023. Discover profitability, liquidity, and efficiency insights (Final Score: 5/9).

Short Analysis - Piotroski Score: 5

We're running Home Depot (HDI.DE) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score evaluates companies based on profitability, liquidity, and operating efficiency, with a score from 0 to 9. Home Depot (HDI.DE) scored a 5 on this scale: - Profitability: Positive net income and cash flow, but lower cash flow than net income and slightly declining ROA. - Liquidity: Increased current ratio but rising leverage, indicating more debt. - Operational efficiency: Share repurchases and slightly improved asset turnover, but declining gross margin. Overall, the score shows a mix of strengths and weaknesses in financial health and operations.

Insights for Value Investors Seeking Stable Income

Home Depot (HDI.DE) shows solid profitability and liquidity with room for improvement in operational efficiency. Despite some weaker points like rising leverage and declining ROA, the overall financial health seems stable with strong historical growth. Potential investors might find this stock worth considering but should monitor leverage and asset efficiency closely.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Home Depot (HDI.DE)

Company has a positive net income?

Net income is a critical indicator of a company's profitability and an essential measure for its overall financial health.

For Home Depot (HDI.DE), the net income for 2023 stands at $17,105,000,000, which is positive. Historically, the company has shown a notable increase in net income over the past 20 years, starting from $3,664,000,000 in 2003 to the present figure. This consistent upward trajectory signifies strong financial performance and stability, contributing positively to the Piotroski Analysis. Consequently, Home Depot earns 1 point for a positive net income.

Company has a positive cash flow?

Cash Flow from Operations (CFO) is a significant indicator of a company's financial health, as it measures the cash generated from core business operations.

In 2023, Home Depot (HDI.DE) reported a Cash Flow from Operations (CFO) of $14.615 billion, marking a positive cash flow, which adds 1 point in the Piotroski Analysis. This is crucial because positive CFO is indicative of the company's ability to generate sufficient cash from its core operations to maintain or grow operations without needing external financing. Over the last two decades, Home Depot has consistently shown positive CFO, with 2020 marking a peak at $20.345 billion amidst the heightened home improvement activities driven by the COVID-19 pandemic. Despite a decrease from this peak, the CFO remains healthy and suggests robust operational efficiency, although the dip from $16.571 billion in 2022 to $14.615 billion in 2023 might warrant careful monitoring.

Return on Assets (ROA) are growing?

Return on Assets (ROA) measures the profitability of a company relative to its total assets. It's crucial for assessing how efficiently a company is generating profits from its assets.

For Home Depot (HDI.DE), the ROA in 2023 was 0.2306, compared to 0.2307 in 2022. This indicates a slight decrease. Consequently, no point is added for this criterion, keeping it at 0 points. Although the difference appears minimal, it could signal stagnation in the efficiency of asset usage. To put it into context, the company's historical ROA data and the industry median show that Home Depot's ROA has generally trailed behind the industry median, which was 0.3673 in 2023. This might indicate that Home Depot has room for improvement in asset utilization compared to its peers.

Operating Cashflow are higher than Netincome?

The criterion checks if a company's operating cash flow is higher than its net income, which indicates high earnings quality and less dependence on accrual-based earnings.

For the fiscal year 2023, Home Depot (HDI.DE) reported an operating cash flow of $14.6 billion, which is lower than its net income of $17.1 billion. Therefore, we assign 0 points to this criterion. This trend suggests that the company's earnings are more dependent on accruals rather than cash flow, which might be a red flag for conservative investors. Historically, we see that Home Depot's operating cash flow has fluctuated significantly over the last 20 years, from a low of $4.8 billion in 2003 to a high of $20.3 billion in 2020. On the other hand, net income has shown a more consistent growth pattern, reaching its peak in 2023. While a negative in 2023, the general long-term trend in cash flow growth suggests that this one-year dip might not indicate a dire situation but is worth monitoring.

Liquidity of Home Depot (HDI.DE)

Leverage is declining?

Leverage, often measured by the debt-to-equity ratio, evaluates a company's debt levels relative to its equity. This metric is crucial for assessing financial stability and long-term solvency.

For Home Depot (HDI.DE), the leverage has increased from 0.5837 in 2022 to 0.6304 in 2023. This rising trend in leverage implies that the company has accumulated more debt relative to its equity year-over-year, signaling a potential increase in financial risk. Historically, Home Depot's leverage shows an upward trend over the last 20 years. For example, from relatively minimal leverage in 2003 at 0.044, it has grown significantly through 2023. Although a moderate level of leverage can support growth, a consistent increase warrants scrutiny as higher debt levels may compromise financial flexibility and elevate default risk. In this case, the Piotroski score assigns 0 points for this criterion, as the increase in leverage is unfavorable.

Current Ratio is growing?

The Current Ratio measures a company's ability to cover its short-term liabilities with its short-term assets. An increasing ratio indicates improved liquidity.

The Current Ratio for Home Depot increased from 1.0126 in 2022 to 1.4051 in 2023. This represents a notable improvement in Home Depot's liquidity position, suggesting that the company is better able to cover its short-term obligations with its short-term assets. This upward trend is reflected by a point addition in the Piotroski score framework. Comparing this to the industry median current ratio, which was 1.4484 in 2022 and 1.4899 in 2023, Home Depot's ratio was slightly below the median at 1.0126 but has now approached the median at 1.4051, indicating alignment with industry standards. This is a positive sign, suggesting Home Depot’s liquidity is improving to be more in line with industry standards over the last two decades.

Number of shares not diluted?

Change in Shares Outstanding refers to the difference in the number of shares a company has issued over a particular period. When outstanding shares decrease, it often indicates share repurchases, which can signal management's confidence in the company.

Home Depot's outstanding shares decreased from 1,054,000,000 in 2022 to 1,022,000,000 in 2023. This reduction in shares indicates a share buyback program, which often suggests that the management believes the shares are undervalued or they seek to improve financial metrics like earnings per share (EPS). Over the last 20 years, Home Depot has consistently decreased its outstanding shares, moving from 2,344,000,000 in 2003 to the current 1,022,000,000. This consistent buyback strategy might indicate the company's strong free cash flow and commitment to returning value to shareholders. Thus, one point should be added for this criterion.

Operating of Home Depot (HDI.DE)

Cross Margin is growing?

The criterion examines whether the Gross Margin has increased from the previous year, indicating higher profitability.

In 2023, Home Depot's Gross Margin was 0.3353, marginally lower than the 0.3363 reported in 2022, translating to a one basis point reduction. This slight decline in Gross Margin would result in 0 points for this criterion, indicating that Home Depot did not improve its operational efficiency in this regard. Over the last 20 years, Home Depot's gross margin has fluctuated, with a peak of 0.3475 in 2014. On the other hand, the industry median surpasses Home Depot's gross margin in 2023 with a significant difference, standing at 0.3673. This indicates that Home Depot has room for improvement compared to its industry peers and is trailing behind the industry median. Therefore, the downward trend in Home Depot's recent gross margin reflects a potential weakening in competitive positioning, emphasizing the need for strategic measures to bolster profitability.

Asset Turnover Ratio is growing?

The Change in Asset Turnover criterion examines whether a company's asset turnover ratio has improved over the past year, indicating more efficient use of assets to generate sales.

Comparing the Asset Turnover of 2.1225 in 2023 with that of 2.1221 in 2022, we see a slight increase. Therefore, we add 1 point. An increasing asset turnover ratio signifies improving efficiency in utilizing assets to generate revenue. Considering the long-term trend data, Home Depot's asset turnover has generally exhibited an upward trajectory over the last 20 years, peaking at 2.6382 in 2020 and maintaining relatively high levels. This consistent growth reflects positively on Home Depot's operational efficiency.