Home Depot (HD) or Lowe's (LOW): cash settles it

2026-09-30 · By Lubin Danilo, founder of Lubin Investment

Home Depot and Lowe's earn the same quality score, 5 out of 10, and fail the same criteria: soft growth, squeezed margins. What separates them is cash. Home Depot's fell 30% in two years and the stock is still expensive. Lowe's costs less, but its balance sheet carries more debt.

If you have ever renovated a bathroom in the United States, you have pushed a cart down a Home Depot or Lowe's aisle. Both chains sell the same drill, the same paint, the same tile, often a few cents apart. A hurried shopper cannot tell them apart, and for a long time the stock market could not either: both shares rose and fell together with interest rates and the housing market.

Home Depot runs 2,364 stores and employs more than 470,000 people; Lowe's employs about 276,000. The first is worth $290 billion on the stock market, the second $105 billion. That size gap is well known. What is less known is what you find when you open the accounts: for two years, the two companies have stopped telling the same story.

I judge a stock in two steps. First the quality of the business, scored on ten criteria (margins, growth, debt, return on capital), without looking at the price. Then the price, using P/FCF: the share price divided by free cash flow per share, meaning the cash that is really left after bills and investments are paid. A P/FCF of 20 means you pay twenty years of that cash. Let's see what our two rivals show.

What do the two giants really have in common?

Measure	Home Depot (HD)	Lowe's (LOW)
Quality score	5 out of 10	5 out of 10
Share price / market cap	$288 / $290bn	$187 / $105bn
Net margin	8.4%	7.3%
Cash margin (free cash flow / sales)	8.6%	7.5%
Annual sales growth over 5 years	+2.3%	-2.9%
Annual cash per share growth over 5 years	+4.8%	+5.4%
Yearly change in share count	-1.1%	-3.7%
Return on invested capital (Cash ROCE)	28.2%	21.9%
Net debt in years of cash	3.5 years	5.1 years
P/FCF (rank in its own history)	19.9× (71st percentile)	15.6× (56th percentile)
Dividend yield	3.2%	2.7%

The table shows similarities first. Both companies fail the same criteria in my grid: sales barely growing (or shrinking), cash per share growing less than 10% a year, and squeezed margins, meaning costs growing faster than revenue. These are two profitable but mature machines whose growth depends on a slow US housing market.

Cash ROCE measures how much cash a company produces for each dollar invested in its operations; above 15% is excellent. Both clear the bar easily, Home Depot a notch higher. Where they split is the balance sheet (3.5 years of cash to repay net debt, against 5.1 years at Lowe's) and the cash trajectory, which the table does not show. I explain the return on capital criterion in my article on ROIC.

Home Depot: why did its cash fall 30%?

Home Depot's free cash flow was $17.9 billion in the fiscal year ended late January 2024, then $16.3 billion, then $12.6 billion in the year ended February 1, 2026. That is a drop of almost 30% in two years, while sales kept climbing, from $152.7 billion to $164.7 billion. Revenue rising while cash collapses is the signal that interests me most.

The main explanation fits in two acronyms: SRS and GMS. Home Depot acquired SRS, a materials distributor for roofers, landscapers and pool installers, then GMS, announced on June 30, 2025, a specialist in drywall and ceilings. Together they operate more than 1,250 sites. The idea is to sell to construction professionals, who buy more, more often, and depend less on the mood of individual homeowners.

But a distributor for professionals does not work like a store where the customer pays at the register. Contractors generally buy on credit (that is my reading of these figures, at least), so large inventories must be financed and payment awaited. That is what Home Depot's net cash cycle shows: 58 days, lengthening by nearly 4 days a year, according to my data. Each extra day ties up several hundred million dollars in inventory and receivables instead of ending up as cash (order of magnitude: $165 billion of sales divided by 365 days). Add the amortization of acquired assets, $125 million in the second quarter alone, or about $0.50 of earnings per share over the year according to the company.

Now the price, in three steps. Home Depot trades at 19.9 times its cash, more expensive than about 71% of its own history. Why? Because the market pays for quality and for the expectation of a rebound: when home sales pick up again (they have been frozen for four years, according to a Yahoo Finance article of September 27, 2026), the stock could benefit. Is that justified? Not quite. In the second quarter, ended August 2, 2026, sales rose 5.7% to $47.9 billion, but only 1.7% on a same store basis (stores open for more than a year, excluding acquisitions), and the company keeps its guidance of 0 to 4% adjusted earnings per share growth for the year. Paying twenty years of cash for growth guided that low leaves little room for error.

My model is harsh on this one: it estimates a buy price of $47 against a $288 share price, a 84% overvaluation. Read that figure with caution. It extrapolates the recent decline in cash per share (about 17% a year), a punitive assumption. What I keep is the direction: expensive, with shrinking cash. The dividend, for its part, absorbs about 73% of last year's free cash flow ($9.32 per share on about 995 million shares, or $9.3 billion, against $12.6 billion), a level that leaves less room than a 3.2% yield suggests.

Lowe's: cash holds, the balance sheet tightens

At first sight Lowe's tells the opposite story. Its sales went from $97.1 billion (fiscal year ended February 2023) to $86.3 billion (January 2026), an 11% drop. But its free cash flow has stayed steady around $7.7 billion for the last two years, after $6.2 billion in February 2024. And since the company cut its share count from 631 to 560 million in three years, cash per share grows 5.4% a year over five years.

That is the share buyback mechanism: by buying back its own stock, a company splits the same cash among fewer shareholders. It works as long as debt does not run away. Lowe's net debt stands at 5.1 years of cash. I do not have the exact breakdown, but the combination of sustained buybacks and high debt suggests part of it was financed by borrowing (inferred, to be checked in the accounts). The press ran a headline on September 24, 2026 about buybacks being targeted to return in 2027, which implies they are slowed today.

The second quarter is clear about the underlying weakness. Lowe's reported sales of $25.96 billion, up more than 8%, but only +0.2% on a same store basis, and cut its annual target to flat comparable sales (against up to +2% hoped for). The gap between +8% and +0.2% comes from acquisitions: Artisan Design Group, then Foundation Building Materials for $8.8 billion. Same strategy as Home Depot, same dependence on the housing cycle, but with a heavier balance sheet to absorb it. Professional customers are holding up, DIY is shrinking.

On price, Lowe's trades at 15.6 times its cash, more expensive than 56% of its history, so upper middle rather than bargain territory. My model gives a buy price of $161 against $187, a 14% overvaluation. Again a caveat: it assumes cash growth of 12% a year, extrapolated from the last two years, which looks optimistic when management itself talks about flat comparable sales. Home Depot and Lowe's are thus judged with two opposite assumptions, one too harsh, the other too soft.

Which one passes my price filter better?

Neither passes today. Both are above my buy price, and both need a housing market that restarts. If I had to separate them, I would say this: Lowe's is cheaper and its cash per share is growing, but it carries more debt and its sales are shrinking; Home Depot has the better balance sheet and the better return on capital, but its cash has dropped and the stock is more expensive than half of its history.

What would change my mind is simple. At Home Depot, free cash flow climbing back above $16 billion, proof that the acquisitions pay off, or a lower share price. At Lowe's, net debt brought under four years of cash. The shared risks are US housing, interest rates and the gap between professional and individual customers; both stocks trade in dollars and are not eligible for the French PEA. This sorting, quality on one side, price on the other, is what I wanted to be able to do for any stock: that is why I built my tool, and you can run the HD versus LOW comparison yourself or read the pages for Home Depot and Lowe's.

FAQ

Home Depot or Lowe's: which is the better company?

On my grid they earn the same quality score, 5 out of 10. Home Depot has a better return on capital (28% against 22%) and less debt, Lowe's slightly livelier cash per share. Neither stands clearly apart.

Why has Home Depot's cash fallen so much?

Free cash flow went from $17.9 to $12.6 billion in two fiscal years. The SRS and GMS acquisitions tie up cash in inventory and receivables, because professional customers pay on credit, and amortization weighs on earnings.

Is Lowe's cheaper than Home Depot?

Yes, it trades at 15.6 times its cash against 19.9 times. But it remains above my estimated buy price, with a 14% overvaluation, and its debt is heavier (5.1 years of cash against 3.5).

Can you hold Home Depot or Lowe's in a PEA?

No. The PEA is reserved for European companies. These two US stocks go in an ordinary brokerage account, with currency risk on the dollar.

About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).