What happens in 6-10 months when a vaccine is being distributed, cruise ships are sailing again, restaurants are open again, people are traveling to see relatives and friends they haven’t seen in a year or more, etc. and the thought is maybe replacing that 80’s brass bathroom faucet isn’t the urgent matter it used to be? I think when the world opens back up, painting the hallway is going to drop down a notch or two.
In that hypothetical case, I'd expect revenue to drop to something more along the lines of pre-COVID, but a big part of the recent gains in LOW stock price relative to HD have to do with increasing profitability and market share within the segment more than just a massive jump in revenue in a single quarter. LOW has seen stronger returns than HD in recent years, and I'd attribute a much larger part of their growth to the general housing market than specifically to COVID shutdowns in recent months simply because of the timelines. LOW has certainly benefited from the timing of the shutdowns I think, as the increase in sales happened to be timed really well relative to changes being made within the company which lead to higher than expected profits. I think that clearly impacted the rate of growth that the stock has seen in the last 6 months, and I wouldn't necessarily expect to see the same rate of growth moving forward. But I do think there's room to grow and continue to reduce the gap in share price with HD in the short term.
Cumulative returns since beginning of 2016: LOW- 120.7%, HD- 126.4%, S&P500- 77.1%
2017: LOW- 136.4%, HD- 109.2%, S&P500- 50%
2018: LOW- 80.9%, HD- 48%, S&P500- 27.3%
2019: LOW- 79.1%, HD- 61.6%, S&P500- 34.5%
2020: LOW- 39.7%, HD- 27.9%, S&P500- 4.5%
Last 6 months: LOW- 85%, HD- 46%, S&P500- 28%
Annual yearly returns 2016: LOW- -6.7%, HD- 2.4%, S&P500- 10.7%
2017: LOW- 30.7%, HD- 41.3%, S&P500- 19.4%
2018: LOW- -1.1%, HD- -10.1%, S&P500- -7%
2019: LOW- 30.9%, HD- 29.2%, S&P500- 30.3%
YTD: LOW- 39.7%, HD- 27.9%, S&P500- 4.5%
I should stress that I'm not really looking to make this a long term investment. These funds will eventually get moved into indexes. I'm really just trying to determine the likelihood that LOW continues to outperform the market over the next say 1-2 years. If we think there's a reasonable chance that it outperforms the S&P over that time frame, then I think it obviously makes sense to just keep the money where it is. It would suck to move it over and potentially miss out on an extra 10% or more in returns.