Shares of home improvement retailer Home Depot (NYSE:HD) are down 10% in the past month. The selloff has been significant enough to send the stock into oversold territory, with a Relative Strength Index (RSI) at around 25. RSI is a momentum indicator and once it falls below 30, it’s a sign that there has been an excessive amount of selling. Shares of Home Depot have been oversold multiple times within the past year as high interest rates and a slowdown in consumer spending has made investors bearish on the stock.
The latest reason to weigh down the stock was news that Home Depot is going to spend $18.3 billion to acquire SRS Distribution, which is a distributor of building products in the U.S. It offers Home Depot a way for the business to reach more professional customers. Home Depot estimates that it will increase its total addressable pro market by $50 billion.
While that’s a good growth catalyst, investors are likely not thrilled with the price tag; the acquisition will be funded through a combination of debt and cash. And with interest rates not coming down just yet, the prospect of issuing debt is likely not sitting well with risk-averse investors.
In the long run, however, Home Depot still makes for an attractive long-term investment. It has a strong brand name and it’s an industry leader. The stock currently trades at 22 times its trailing earnings and also pays an above-average dividend which yields 2.7%. As long as you’re willing to be patient, this can be a great stock to buy, especially once rates come down.
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