LOW growth has stalled and underlying value is declining; despite low valuation metrics, it is not truly cheap and requires further research before buying.

The fourth stock I'll talk about today is Lowe's, whose ticker symbol is LOW. This is another company that is not doing as well as expected. And as you know, companies with 52-week lows are usually not doing well.

The stock price has fallen 7.91% in the last 5 years. It has decreased by 25.61% in the last one year.

Historically, this has been a great dividend growth stock. You can see their huge dividend growth over the last 20 years. The dividend has increased by 257% in the last 10 years.

This is a compound annual growth rate (CAGR) of 13.58%. However, that is now a thing of the past. The dividend has grown at a CAGR of only 13% or 4.35% in the last 3 years. And you can see that the three most recent dividend growth rates were around 4%.

In terms of entry point dividend yield on cost, this is one of the best in the last 5 years, 10 years and in the history of Low's stock. But you are buying it in a different situation where the company is no longer growing and the dividend growth is much lower.

Now, speaking of dividend payments, I would say it is still quite sustainable based on their free cash flow and earnings. It has been 38.7% in the last 12 months and it has always been in the range of 20 to 40%.

The income payout ratio in the last 12 months is 41%. Based solely on their cash flow generation and income, this dividend is sustainable. And I actually think that's the lowest payout ratio of anything I've shown today.

But the truth is, you see that they pay out a large amount of money as dividends, but in my opinion, they have been very irresponsible in their share repurchases from 2021 to 2023.

There was a time when they spent $16.14 billion on share repurchases in the past 12 months. That was in 2022. And they had to practically reduce it to zero. So, you're no longer getting that portion of shareholder return, and the dividend growth rate has also slowed.

And besides, they were spending a lot of money on share repurchases. Which was more than double their annual free cash flow at that time. So, for some reason they decided to take out a lot of debt to repurchase shares.

I don't know what Lowe's was doing there. In my opinion, it was a stupid decision.

So, the company now has a very high net debt of $38 billion, and its cash flow has stagnated over the past 5 years, growing by just 1.92% over the past 12 months to $7. This is their free cash flow, which they can use to pay down debt and pay dividends.

And you can really see that it was at its highest level in 2020. Perhaps the reason for this was the surge in housing development, as people were staying home and repairing homes during Covid.

It has since declined from that level and has essentially stagnated for the past few years.

The company's consolidated earnings per share over the past 12 months were $12.47. It has grown by only 8% in the last 5 years, which is an annual compound growth rate of 1.68%.

However, it is much better than the last 10 years, with a 236% increase.

So, the big question for Lowe's is whether they can return to the growth levels of the past. This company was a source of excellent growth in the market. Lowe's and Home Depot are both great businesses, but growth has slowed, so they are now trading at lower valuations.

Over the past 5 years, the current trailing 12-month P/E ratio of 16.18 is the lowest in the past 5 years, which is the 11th percentile. But the problem is, earnings per share are constantly declining.

On a 10-year basis, it looks cheaper than historical multiples. Even looking back to 2007, Lowe's shares don't usually trade at such low P/E ratios. But again, Lowe's was a growing company throughout much of that time.

To be honest, companies go through cycles, especially those that have been around for decades. You will see that Lowe's suffered major losses during the Great Depression. This was reasonable, as its business was largely focused on real estate.

So, from 2007 to 2013 or 2014, the company did not experience any growth during this period. But after that time, earnings per share from 2013 to 2023 were excellent. Their growth was extraordinary.

And if Lowe's goes through another such growth cycle in the next 10 to 20 years, Lowe's shares today will look cheap.

But instead, we are in a position today where the stock is at a 52-week low. And based on the fair value graph, it seems like a good value. But again, the underlying value is declining.

It is not growing. So, it's not actually as cheap as the share price decline suggests. It may seem a bit cheap on a dividend basis because they haven't cut the dividend yet, but growth is slowing.

So, Lowe's stock is one I want to research further. In my opinion, it still doesn't seem very cheap. Growth has really stalled. And that 2.61% dividend yield, it's not as high as McDonald's or PepsiCo.

And I think the long-term growth is a bit questionable.

I'm not sure which of these three will actually grow the fastest. Maybe I need to do more research on Lowe's, read some of their earnings reports. I'm not sure what kind of growth plans they have in the future or whether they will be able to invest in a new location.

Maybe I need to do more research on Lowe's , read some of their earnings reports. I'm not sure what kind of growth plans they have in the future or whether they will be able to invest in a new location.