The Search for the next Home Depot

The Search for the next Home Depot

The Search for the next Home Depot 940 530 Jonathan Poland

900,000 percent gain over 40 years… I’ll take it.

It’s amazing how little financial pundits bring up the massive success of Home Depot. Maybe because Home Depot has created better returns than any almost other investment since the 80s, including Coca-Cola and Berkshire Hathaway. Only Microsoft has had a better run.

On September 23, 1981 Home Depot began trading at 12/share. Since then, the stock has split 9 times bringing down the price split adjusted to 0.02. Thus, you would have roughly 5,000 shares for every 100 worth of HD you bought in 81. To put that into perspective, a 5k investment is now worth roughly 4.4 million. That 5k equates to about 13k in today’s dollars.

So, what do you need to look for?

First, look for a company that will be around in 40 years where the core business model won’t change. Home Depot still has the same essential deliverable it did 40 years ago, retail home improvement goods.

Second, look for a company that is creating value for their employees and customers at a profit. Profits must increase along with shareholder equity for a typical company to become more valuable.

Third, look for a company that has a market capitalization of less than one billion, or even less than 500 million. Buying AAPL or AMZN or HD at this point in their lifecycles won’t deliver this kind of performance – that should be self evident.

Fourth, you have to hold onto it. It’s hard. Take it from me, who owned Apple at 15, which is roughly 3 split adjusted. EMPHASIS on the word  owned.

Bottom Line: There is another Home Depot like stock that has a market cap right now of less than a billion dollars. GO FIND IT.


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