Home improvement stocks vie with tech for investor revisit

New York

GLOBAL tech stocks aren't the only ones due an investor checkup. Home improvement companies have also surged during the pandemic, and it's fair to ask if this is as good as it gets.

An equal-weighted basket of 30 of the world's biggest home improvement companies is up 23 per cent this year, easily besting the 2 per cent rise in the MSCI AC World Index, according to data compiled by Bloomberg.

The gauge has almost doubled from its March lows, outpacing even the 63 per cent rise in the high-flying Nasdaq-100 Index. The gains have left stocks in the basket - including US giant Home Depot, Kingfisher Plc from the UK and Germany's Hornbach Holding AG - trading on an average of 25 times forward earnings, up from 19 times at the end of February.

While the coronavirus has upended large swathes of the global economy, worldwide lockdowns have ignited a boom in home improvements.

Home Depot reported second-quarter revenue growth that was more than double an already high level of expectations, while reports from Germany suggested do-it-yourself sales soared by 16 per cent in the first half.

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But in a stock market that's ever forward looking, some are beginning to question whether the boom is sustainable, particularly as lockdowns ease and stimulus payments from governments look set to come to an end.

"The Covid-19 crisis pulled forward record levels of demand for home improvement projects as many consumers had more time and money to work on their residences," Jessica Rabe, co-founder of DataTrek Research, wrote in a note.

"Once there's a vaccine it will enable a greater share of disposable income to transition back to vacations and activities outside the home."

According to Ms Rabe, US home improvement shares in particular trade around record levels with high valuations, and will have "very tough" sales and earnings comparatives to beat next year - which could disappoint investors.

"It is hard not to believe that time is coming for home improvement stocks," she said. BLOOMBERG