Leigh Drogen

About the Author Leigh Drogen

Leigh Drogen is the Founder and CEO of Estimize. Estimize is an open financial estimates platform which facilitates the aggregation of fundamental estimates from independent, buy-side, and sell-side analysts, along with those of industry experts, private investors and students. By sourcing estimates from a diverse community of individuals, Estimize provides both a more accurate and more representative view of expectations compared to sell side only data. Leigh started his career as a quant trader at Geller Capital, a White Plains, NY based fund where he ran strategies that looked at earnings acceleration and analyst estimate revision models, as well as price momentum and several sentiment indicators. Leigh later went on to be the founder of Surfview Capital, a New York based asset management firm that used many of the same strategies as Geller Capital, with a focus on higher beta names on an intermediate term time frame. His educational background includes focus in economics and international relations, specifically war theory. He is a graduate with honors from Hunter College in New York City. You can contact Leigh by emailing him at Leigh@estimize.com

What Investors Need From Home Depot To Justify A P/E Ratio At 10-Year Highs

Home Depot (NYSE:HD) faces steep expectations as it reports 4th quarter earnings Tuesday morning. Positive housing data and an expanding e-commerce business have investors setting their sights significantly higher than the Wall Street consensus.

Contributing analysts on Estimize expect Home Depot to top Wall Street’s earnings consensus by 2 cents per share. That’s what contributors predicted last quarter and exactly what Home Depot reported. The difference this period is that Home Depot’s price to earnings ratio has become bloated ahead of the earnings release.

HD PE Ratio (TTM) data by YCharts

The graph above from YCharts shows that Home Depot’s P/E ratio has been expanding rapidly since last summer. Shares are now trading at 25.5x earnings, a 10-year high.

The price of Home Depot stock has appreciated ahead of an expected boost in profits. This quarter investors on Estimize are looking for 25% year-over-year earnings growth. A 25% increase to the bottom line would be Home Depot’s best quarterly result in the past year.

The rate of revenue expansion is also projected to hit a one-year high. The Estimize community is predicting 6% global sales growth.

The big picture here is that Home Depot has gotten to expensive levels when you take recent history into account. Investors expect Home Depot to have a great year and beat Wall Street’s earnings consensus handily on Tuesday. If Home Depot’s earnings don’t impress, that P/E ratio could snap to the downside dragging the stock price along with it.

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