Analyzing the Performance of Lowe’s Companies (NYSE: LOW)


Short Sell Lowe’s Companies or Settle in for the Long Haul? 


Source: StockCharts (LOW Lowes Companies, Inc)  

Lowe’s Companies Inc is one of a select few companies that has benefited immeasurably from the extended lockdowns across the United States. From March 2020 to the present, tens of millions of Americans found themselves staying at home, to guard against the ravages of the pandemic. All that free time invariably benefited specific industries such as home improvement companies like Lowe’s Companies Inc, Home Depot, et al. According to the U.S. Census Bureau retail report, home improvement companies were up 12%, with continued strong gains expected.  

Industry analysts anticipate robust sales figures to continue in April and May 2021, as these months are regarded as strong sales periods for the industry. Lowe’s Companies Inc is neck and neck with Home Depot as a strong performer in terms of weekly visits, and it’s definitely one of the best stocks to watch of late. Seasonal trends are likely to boost traffic in this sector, resulting in a surge in sales volume. Provided that excess demand does not result in significant price rises (CPI rose 2.6% in March) current trends may continue over the short-term. Fed Chair Jerome Powell anticipates inflation slowing to 2.1% by 2023. 

Current Trends with Lowe’s Stock 

As of April 12, 2021, Lowe’s stock gained approximately 67% of its value year-on-year. The pandemic reallocated disposable income away from eating out and vacationing to home improvements. Lowe’s P/S multiple of around 1.6X is less overvalued than that of its main competitor Home Depot at 2.5X. In terms of revenue growth, the stock has certainly generated high sales volumes at 26.1% compared to Home Depot of 19.7% for the fiscal year of 2020. It is worth pointing out that the pandemic-induced sales volumes will likely taper off in time as disposable income gets re-routed to other industries. 

The strategic architects at Lowe’s aren’t sitting around waiting for their customer base to peel off after the pandemic; they’ve invested heavily in a digital infrastructure to facilitate expanded services to customers. Revenues generated by the company have grown markedly year-on-year for Lowe’s, with the following figures reported: 

  • Full year 2017 – $68.6 billion 
  • Full year 2018 – $71.3 billion 
  • Full year 2019 – $72.1 billion 
  • Full year 2020 – $89.6 billion 

For the 12 month period of 2020, Lowe’s operating margin was 8.6%, and the operating margin increased by 0.8 percentage points. Given that Lowe’s has generated much higher revenue growth, and features improved operating income growth, Lowe’s stock has performed quite well in 2020. This has continued into 2021 as evidenced by the chart above. Another key metric to identify value in terms of stock prices is the price at which the company is trading versus the estimated earnings. For Lowe’s, that figure is 20 X, while for its chief rival, Home Depot that figure is 25 X. 

Technical Indicators for Lowe’s Stock 

Traders tend to rely on technical indicators such as 50-day moving average, 200-day moving average, Bollinger Bands, Relative Strength Index, and MACD. The 50-day MA price is $178.13, while the 200-day MA is $163.50. These figures indicate that recent gains outpaced past performance. This is seen by a left to right increase in prices on the chart. The top Bollinger Band is priced at $206.80, the center band is at $190.75, and the lower Bollinger Band is at $174.69. The current stock price of $204.50 is rapidly approaching the upper Bollinger Band. This indicates that it is currently experiencing surging levels of demand. Once it crosses over, that reflects overbought territory which is usually followed by a reversal. 

Other important technical indicators include the Relative Strength Index. The RSI is a clear indicator of overbought or oversold sentiment. In the case of Lowe’s stock, we see some interesting developments taking place. For example, oversold territory would be represented by a crossover beneath the level 30. And overbought territory would be anything above the level of 70. We can see that this happened several times of late, and is currently taking place with Lowe’s stock. Once the price reaches the 70 level on the RSI, it typically retraces to the downside – sells off. 

The current RSI level for Lowe’s stock is hovering around 79.77 – overbought. The MACD – Moving Average Convergence Divergence – is a trend indicator. When it crosses over, it reflects a change in sentiment is about to take place. In the case of Lowe’s stock, we see there is a gradual diminishing of sentiment indicating that a move to the downside looks like it is coming. These reversals can take time to occur, but when the y-axis of the MACD indicates a diminishing positive level, it moves closer towards the X/Y intersection and invariably corrects to the downside. That means that a reversal is taking place. 

How Do Analysts at Yahoo see Lowe’s stock? 

The stock is regarded as bullish across the board. This is evidenced by a performance outlook of bullish for the short-term, mid-term, and long-term. Surprisingly, despite the price increases, it is deemed an undervalued stock. In terms of Lowe’s recommendation ratings where 1 is a strong buy and 5 is a sell, Lowe’s is currently rated at 1.9 as a strong buy. The company’s earnings and revenue have grown markedly since 2019 when they were listed as follows: 

  • 2018 – revenue of $71.31 billion and earnings of $2.31 billion 
  • 2019 – revenue of $72.15 billion and earnings of $4.28 billion 
  • 2020 – revenue of $89.6 billion and earnings of $5.83 billion 

Lowe’s currently has an earnings per share of $7.75, and the next earnings date to look out for is May 19, 2021. There is a forward dividend & yield of $2.40 and 1.19%. Viewed in perspective, the technical elements are certainly positive.  

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