Very often there are cycles in the investing market, because some industries are more tied to weather than others. One can think about farm implement dealers, they do not sell many machines during the middle of winter. What does a farmer do with it? There are other industries such as home building, in over half the country there is the winter weather. Winter weather means it is cold outside, this means when you look towards home information such as projected home starts you can think about buying the companies which build housing or the suppliers such as Home Depot and Lowes. This year COVID happened and those who typically live in housing have been rushing out to Home Depot and Lowes.
In mid August, Home Depot reported its biggest rise in quarterly same store sales in at least 2 decades. In an article by Uday Sampath Kumar of Reuters, Home Depot recorded an amazing sales growth of 23.4% per store, analyst’s were expecting 10%. Sales increased to $38.05 billion and net income increased to $4.33 billion or $4.02 a share. All very good news as analysts were expecting $3.71 a share.
The stock fell on the very good news. Why because with Wall Street the issue is not what have you done, the issue is what will you do? Home Depot had a record same stores sales, will they repeat it? Now that people have repaired, add on, bought more items from Home Depot will they do it again? The answer tends to be the next quarter will be less. Seth Basham of Wedbush Securities said We will see a slowdown the question is the degree to which the slowdown occurs.
Sometimes when companies perform too well, the stock market punishes them because the expectation is they will not likely repeat it. Sometimes when the company performs badly, Wall Street likes it because there is hope to perform well. In Wall Street there are a lot of depends.
There are more questions than answers, till the next time – to raising questions.