A gain of around 15.6% in 2018 for shares of The Home Depot, Inc. (HD) likely wasn't possible without the help of unusual bullish trading activity accompanying the move higher. There is no question that Home Depot is benefiting right now from the development of Hurricane Florence, but the unusual buying in the shares began well before this past week. I even wrote about it in this post from July. Basically, we think there is another story that isn’t being told ... unusual trading activity.
The true tell on the near-term trajectory of the stock lies in its trading activity. At many points in 2018, Home Depot shares have increased in price alongside an increase in volume. This can be indicative of smart money accumulating shares. The bottom line here is that the manner in which a stock trades can oftentimes alert you to the forward fundamental picture more so than simply looking at a company's financials alone.
For Mapsignals, the strongest indicator of positive price momentum is obtained by measuring potential institutional buying. Since May, Home Depot has logged five of these rare signals. We like to see bullish activity in the shares alongside solid forward fundamentals, as this indicates that demand for the stock should increase over time, thus increasing its price. (For more, see: Buy These 2 Home-Improvement Stocks: Jefferies.)
In the chart below, Home Depot shares broke out to new 52 week highs on big volumes. Shares should continue the upward momentum:
Mapsignals' goal is to identify tomorrow’s top stocks today. We're basically looking for outlier companies with healthy fundamentals accompanied by outsized, unusual institutional trading activity. By studying these data points, we can make an educated guess as to which equities institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.
When deciding on the strongest candidate for long-term growth, we consider many technical areas important to success. A few of these for Home Depot are as follows:
Below, you can see all the unusual activity signals made by Home Depot in the past 52 weeks:
On top of a great technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Home Depot has solid forecast earnings and sales growth rates:
- Forecasting 2018 EPS growth rate: +29.2%
- Forecasting 2018 sales growth rate: +7%
- Three-year earnings growth rate: +15.69%
Home Depot checks the box on strong technicals and fundamentals while showing bullish institutional momentum in 2018. We believe that the current level for the shares is positioned for further upside. All of this points to further long-term bullish action for the stock.
The Bottom Line
Home Depot stock represents a potential buying opportunity for the long-term investor. Given the solid earnings growth, sales growth and multiple unusual accumulation signals, this stock could be worth a spot in a growth-oriented portfolio.
To learn more about Mapsignals' institutional signals, please visit our "About Us" page.
Disclosure: The author holds a long position in Home Depot shares at the time of publication.