Lowe's faces macro headwinds (high rates, weak DIY demand) causing underperformance; speaker is evaluating whether to hold.

Now we come to Lowe's, who is trading truly right at a 52- week low, down 27% in the last year. But not just that, this is a stock that has seen their share price decline by 3% over the last 5 years.

Now, on a total return basis, they are positive, but the starting yield is not necessarily that high. So, not by a lot, especially if you include true returns or real returns, meaning adjusted for inflation.

Now, this is shocking to a lot of people because historically, Lowe's have been an incredible dividend growth compounder. The returns from 2009 really to around 2025 were absolutely incredible and during that time dividend growth was incredible as well.

Their 10-year dividend kagger was 14.4% the 5-year 11.6%.

But the issue is here. It's in the free cash flow versus dividends paid chart. free cash flow in 2020 was just incredible, especially compared to 2018 to 2019. It was nearly a record by double the amount of what their previous high was. It was very close to that.

Think about what was going on during this time period. Around 2020 to 2021, Lowe's was benefiting from more people spending time at home. They were also benefiting from stimulus payments and elevated household savings, as well as a housing and remodeling boom, not to mention extremely low mortgage rates.

So the result of those things was a surge in free cash flow. There is tons of renovation projects going on in the housing market. And so it was an incredible time for Lowe's.

If we zoom out, we can see exactly what that looked like. From the bottom during the 2020 crash, they were trading at roughly $66 a share. Just a year and a half later, they had climbed all the way up to $260 a share.

So a 4x in roughly a year and a half time period. Incredible returns.

But as we know, everything has now changed. We can see free cash flow still hasn't reached the previous 2020 peak. In fact, we saw declines for about 3 years in a row up to 2023 and it's recovered a little bit over the last couple of years, but it was stagnant in 2025 relative to 2024.

Now, as a result of this sell-off, we can see Lowe's is trading at a PE multiple of just 15.7. 15.7, which is well below the historic average over the last 5 years of about 17.57, which was already lower than that of the S&P 500.

We zoom out even more, we can see 17.6 is roughly the historic average PE multiple.

So, is Lowe's interesting at current prices? Well, let's take a couple of things into consideration. Remember all those things I just mentioned that Lowe's is benefiting from in 2020?

Things like people spending more time at home, elevated household savings, lower mortgage rates. We don't have any of those things right now. That's a simple reality.

So, Lowe's has a few macroeconomic conditions that are certainly working against the company. Because what do all those things mean? Well, higher mortgage rates a lot of the times will mean fewer home sales, meaning fewer renovation projects, not good for Lowe's.

With higher rates, renovations are also more expensive to finance. Higher rates do also pressure professional customers.

Now, here's what's important. We have to understand when it comes to Lowe's versus Home Depot. Yes, Home Depot is trading pretty poorly over the last year as well, down by around 26%.

But there is a big difference between these two stocks a lot of people don't realize. Historically, roughly around 75% of low sales have come from do-it-yourself customers, while Home Depot is sitting at about 50%.

So, professional contractor sales have been stronger over the last few years, which has certainly benefited Home Depot more than it has for Lowe's. So that's something to keep in mind when evaluating the two companies.

Now that being said, Lowe's is now sitting on a yield of about 2.5% which is also higher than what we've seen historically for this stock. In fact, this is the highest yield in the last 5 years and close to the highest yield in the last 10 years with the exception of the 2020 crash.

So again, what does the valuation actually look like at current prices? Well, let's jump over to our stock valuation sheet and look at Lowe's. To start, if we look at a discounted cash flow analysis model for Lowe's, here's what we'll see.

If we assume 0% free cash flow growth for this stock, the DCF price per share is roughly $117. They're trading close to $200. Naturally, the market is pricing in growth, as they should.

So, what type of growth is the market pricing in? Well, over the next few years, not a whole lot of growth. And obviously, projecting out growth 5 6 7 years from now does get quite a bit harder.

So, let's take that into consideration. At about 6% free cash flow growth, Lowe's is sitting at roughly $175.60 per share at 8% around $198. So the market is pricing in a lot of growth on these back-end years because there's not a lot of growth projected in 2026 and 2027.

The backend years would need substantial amounts of growth and again that's very dependent on a lot of macroeconomic variables.

So, complete transparency, like always, Lowe's is a stock that I've held in my personal portfolio for a little while now, and it's certainly not been a winner. If we blow up my growth chart, we can see I was fortunate to add out a good valuation because I'm up about 18% on the position, but I have underperformed the market.

So, this is a position I'm closely evaluating as to whether or not I should continue to hold.