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EMTrade Agenda

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... offering building materials, home improvement products and related furnishings. ... Home Depot vs. Lowe's. 55% of Lowe's are within 5 miles of HD ... – PowerPoint PPT presentation

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Title: EMTrade Agenda

1
EM-Trade Agenda

Interviews
Poker Tournament
Fantasy Stock Market
Home Depot Analysis Presentation
Mark Your Calendar
April 15th Applications Due (LL IWantToHelp)
Sign-up deadline for Fantasy Stock Market Game
April 26th Poker Tournament (Winship Ballroom)
Early September Next Meeting

2
Home Depot Description

The Home Depot owns and operates 1,471
do-it-yourself warehouse retail stores offering
building materials, home improvement products and
related furnishings.
For the FY ended 1/30/05, revenues rose 13 to
73.09B. Net income rose 16 to 5B.
Revenues reflect increased sales due to the
opening of new stores.
Net income also reflect improved gross profit
margins due to lower cost of merchandise sold as
a percentage of revenue.

3
Home Depot Current Ratio

Definition Current Assets / Current Liabilities
Current is short-term
Current Assets Money, Inventory
Current Liabilities Short-term debts
Debts are IOUs
General idea A company is generally considered
financially healthy when current assets are equal
or higher than current liabilities.
What to look for Current Assets gt Current
Liabilities
Home Depots Balance Sheet Diagram
Recommendation A current ratio of 2. Good (1.395)

4
Home Depot Debt/Equity Ratio

Definition Long-Term Debt / Equity
Long-Term Debt
Equity Total assets Total Liabilities
General idea A higher debt/equity ratio
generally means that a company has been
aggressive in financing its growth with debt.
What to look for A low Debt/Equity Ratio. The
lower the ratio, the better.
Home Depots Balance Sheet Diagram
Home Depot Long term debt / Equity Ratio
Year 2004 856,000 / 22,407 0.038
Recommendation Ratio of 0.1. Great (0.038)

5
Home Depot P/E Ratio

Definition Price / Earning
The price of the stock / the year earnings of a
company.
Earnings Earning in EPS (Earnings per share)
General Idea The higher the P/E ratio, the
higher the speculation of the companys future
earning performance
What to look for Depends. Optimistic High P/E
ratio. Conservative Low P/E ratio
Homes Depot Income Statement - Look at EPS
Home Depots Quote
Ratio 17.09
Recommendation P/E ratio of 15. Great (17.09)

6
Home Depot Growth Rates

Definition The compounded annualized rate of
growth of a profit, earnings, revenues, etc.
Relative measurement (percentage)
(This years profit Last years profit) / (Last
years profit)
General Idea Higher the growth rate, higher the
risk.
Want to look for growth.
What to look for Depends. Risk taker vs. Risk
averse
Homes Depot Income Statement
Revenue Growth (64,816.0 - 58,247.0) / (58,247.
0 ) 11
Recommendation 10 to 15 growth rates. Great
(11)

7
Home Depot Earnings

Earnings The net income of a company during a
specific period. Generally, but not necessarily,
referring to after-tax income.
Earnings are perhaps the single most studied
number in a company's financial statements. They
show how profitable a company is.

Guidance has a role in the market because it
provides information that can be used by
investors to analyze the company, evaluate
management, and create forecasts.
Companies are foolish if they think that they can
alter the market's short-term focus.
The Street will still do what it wants, and it
will stay focused on quarterly timelines.
If, however, more companies opt for no guidance,
the Street may inadvertently become more rational
and stop whipsawing stock prices for miniscule
variances.

Earnings Estimate An analyst's estimate for a
company's future quarterly or annual earnings.
Analysts use forecasting models, management
guidance, and fundamental information on the
company in order to derive an estimate.

Earnings Surprise When the earnings reported in
a company's quarterly or annual report are above
or below analysts' earnings estimates.
When a positive earnings surprise occurs, share
price will usually increase. A negative earnings
surprise will usually result in a decline in
share price.

Earnings Growth Rate indicators that reflect the
opinions of industry analysts as to the growth
potential of a company's earnings.
The data is supplied by an outside service.

8
Home Depot Insider Trading

Insider Trading The buying or selling of a
security by someone who has access to material,
nonpublic information about the security.
Insider trading can be illegal or legal depending
on when the insider makes the trade
Illegal when the material information is still
nonpublic. Trading while having special knowledge
is unfair to other investors who don't
have access to such knowledge.
Includes tipping others when you have any sort
of nonpublic information. Directors are not the
only ones who have the potential to be
convicted of insider trading. People such as
brokers and even family members can be guilty.
Legal once the material information has been made
public, at which time the insider has no direct
advantage over other investors.
The SEC, however, still requires all insiders to
report all their transactions.

An executive, director or major shareholder sold
a small number of shares recently. (Neutral)
Shares are neither being accumulated heavily nor
sold heavily by financial institutions. (Neutral
for a large company)

9
Competitive Factors

Price
Store location
Customer service
Depth of merchandise

10
Home Depot vs. Lowes

55 of Lowes are within 5 miles of HD
HD commonly faces decline up to 15 when Lowes
enters nearby
Industry saturated in 4 years?

11
Home Depot Chart Analysis

Price
Volume
Moving Averages
MACD
RSI
Stochastic

12
Price
13
Volume
The number of trades in a security over a period
of time.
14
Volume
15
Volume
16
Volume
17
Moving Averages (MA)
An average of data for a certain number of time
periods.
18
MACD (Moving Average Convergence/Divergence)

Displays trend following characteristics
Compares moving averages

19
RSI (Relative Strength Index)
- Compares overbought (gt70) and oversold (lt30)
20
Stochastic Oscillator
- A momentum indicator that measures the price
relative to the high/low range over a set period
of time.
21
Thank You!
22
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