HD Has Topped, COST Is Next
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Behemoth home improvement retailer Home Depot (HD) reported 4Q21 earnings before the open Tuesday. The quarter itself was fine with US Comps +7.6% and EPS +21% to $3.21. The problem was guidance. HD guided 2022 comp growth to “slightly positive” with flat operating margins resulting in low single digit EPS growth – likely mostly a function of share buybacks.
This suggests to me that the post-COVID home improvement boom is over and other investors seem to be drawing the same lesson as shares are currently -9%. A look at the chart combined with the guidance means HD stock has likely topped.
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It is my belief that Costco (COST) is next. While fundamentals have remained stellar through January when comps excluding fuel were +10.8% (they were +11.5% in December), the stock is just too expensive at ~40x my estimate of current year EPS. Any weakness in their next quarterly report – which will be released next Thursday March 3 after the close – akin to HD today will likely send the stock tumbling.
HD and COST are legendary companies but now is not the time to own their stocks.