Investment Fundamentals and Portfolio Management - Research Paper Example

Home Depot Introduction The Home Depot Inc. is in the home improvement market. It is in the business of building materials and numerous related services. The company offers thousands of products through over 2250 outlets spread across US, Canada, Mexico, and China. The paper attempts to explore Home Depot fundamentals by examining its 10k report for the year ended January 29, 2012 and the current Federal Reserve data on general economic conditions in US. RevenueHome Depot registered revenue of $70.

4 in fiscal 2011, an increase of 3.5% over fiscal year 2010. This should be seen in the prevailing recessionary and difficult market conditions in home improvement business (The Home Depot, Inc., 2012).Gross ProfitThe company has registered gross profit of $24.3 billion in the fiscal 2011 that is an increase of 4.1% over previous year. That has been achieved through better management practices and customer focused policies (The Home Depot, Inc., 2012).Operating IncomeA significant increase in operating income at $6.

7 billion has been registered compared to $5.8 billion posted in fiscal year 2010 – that means an impressive 14.1% increase in operating income on yearly basis (The Home Depot, Inc., 2012).Major Key InitiativesThe remarkable performance has been possible through four major key initiatives: focusing on customer service, increasing productivity and efficiency, innovation and portfolio strategy providing value to the customers (The Home Depot, Inc., 2012).Shareholder ValueIncreasing shareholder value has been one of the major objectives of the Home Depot.

Accordingly, the company resorted to buy-back its own shares and garnered 97 million shares from the market amounting to $3.5 billion during the year ended January 2012. In November 2011, the company rewarded its shareholders by declaring a cash dividend of 29 cents per share, a 16% increase over previous quarter proving that the company values its shareholders (The Home Depot, Inc., 2012).Federal Reserve Data on General Economic ConditionsAs per Federal Reserve Report of June 2012, economic growth has taken a dip.

GDP growth rate reduced to 2% annually in the first quarter this year after touching a 3% growth rate in the last quarter of 2011. Employment conditions though improved in the last quarter of 2011 and first quarter of 2012; however, it slowed down during April and May this year. The unemployment rate, a crucial macroeconomic factor, was registered 8.2 percent in the second quarter of 2012. The forecast has it that the economic growth is likely to be at moderate levels in coming quarters. The depressed housing market is one of the major bottlenecks for the economy to grow at a faster pace.

Homebuyers face difficulty in obtaining mortgages due to stricter lending regimes. Moreover, due to economic upheaval experienced in the last few years, creditworthiness of borrowers has been hugely affected. Home Depots revenue growth will greatly depend upon the recovery of housing industry and the likely pace of reduction in the unemployment data (Bernanke, 2012). ConclusionCurrent economic scenario as revealed in the federal report recently does not permit investing in the stocks because economy has not yet taken off; high unemployment rate and subdued housing sector do not augur well for buying any stock such as Home Depot.

There is no denying the fact that Home Depot is a good investment when viewed from the fundamental viewpoint; however, it should be kept in mind that best of the best growth stocks suffer in adverse economic conditions. It would be worth waiting for a few more quarters until before making any investment in Home Depot until some definite signals are available establishing a fast paced recovery with respect to GDP growth, reduced unemployment coupled with moderate to low inflation rates.ReferencesBernanke, B. S. (2012).

Economic Outlook and Policy. Retrieved August 19, 2012 fromhttp://www.federalreserve.gov/newsevents/testimony/bernanke20120607a.htmThe Home Depot, Inc. (2012). United States Securities and Exchange Commission: Form 10-K. Retrieved August 19, 2012 fromhttp://www.sec.gov/Archives/edgar/data/354950/000035495012000003/hd-1292012x10xk.htm#s3147979F8D49836BC5C25D803DECC3B4