Lumber Prices Are Crashing: Is That Good News for Home Depot?

Lumber selling prices have knowledgeable a wild trip because the onset of the pandemic. But rates have generally trended one way given that March, and that is down. Certainly, the price of lumber for each 1,000 board ft approached $1,500 at the beginning of March. As of this composing on May perhaps 31, the value had fallen to $659.

Since lumber is a well known product at Home Depot (High definition 2.92%), the rate alter could have implications for the residence improvement retailer. Let’s seem at what they could be. 

A person using a drill on a wall for a home improvement.

Picture source: Getty Photographs.

Falling lumber rates could spur extra demand from customers

Residence Depot alluded to these volatile lumber selling prices in the convention simply call that adopted the release of its to start with-quarter earnings on May well 17. Executive vice president for merchandising Jeff Kinnaird explained:

Inflation from main commodity categories positively impacted our normal ticket development by somewhere around 240 basis factors during the first quarter, driven by inflation in lumber, copper, and developing products. Lumber rates remained volatile through the quarter. As an case in point, framing lumber peaked at about $1,300 for each thousand board ft all through the to start with quarter ahead of slipping around $400 to somewhere around $900.

In other phrases, Residence Depot handed along the increased costs to people, who did not balk at the boost. Demand for property enhancement initiatives has been off the charts since the onset of the pandemic. People who prepared to expend additional time at household took to customizing their living spaces to accommodate the way of life transform. 

It will be intriguing to observe if the reduce lumber costs induce folks to choose on much more jobs. Administration noted that customers have been resilient in the encounter of soaring prices. That implies that purchaser price tag elasticity of desire (a metric that steps the for every-unit improve in client need in response to a improve in price) may well be more muted.

Yet, the slide in lumber costs is additional probable a optimistic than unfavorable for House Depot. CEO Ted Decker mentioned he expected the lessen lumber rates to supply a carry in the 2nd quarter.

HD EPS Diluted (Annual) Chart

High definition EPS diluted (annual). Data by YCharts.

Do reduce lumber price ranges make Home Depot inventory a invest in?

Lower lumber rates are not a purpose to invest in Residence Depot stock. These charges remain volatile, so they could be reduced this quarter and then greater once more upcoming. Total, Property Depot is an excellent company that has built a great deal of shareholders wealthier. It has developed earnings for each share in the final 10 years at a compound once-a-year price of 20%.

HD PE Ratio Chart

Hd PE ratio. Details by YCharts.

The stock is down 27% off its superior as buyers get worried about a reversal of the house advancement boom since the pandemic’s onset. Investing at a rate-to-cost-free-dollars-circulation ratio of 28 and a price-to-earnings of 19, Residence Depot’s inventory is pretty valued by historic criteria. So whilst the lower lumber selling prices do not make Household Depot stock a obtain, a potent enterprise at a honest valuation are fantastic motives to incorporate it to your portfolio.