Building a Position in Home Depot

NEW YORK ( TheStreet) -- There's no question Home Depot ( HD), whose shares have soared 190% over the past five years, has been one of the best plays in the housing recovery.

When you consider Home Depot has more than doubled the performance of rival Lowe's ( LOW) during that span, there's little debate as to which of the two wins the title for head of household.

However, I have always had a tough time reconciling Home Depot's valuation to that of other leading retailers such as Wal-Mart ( WMT) and Costco ( COST). I'm not suggesting the stock lacks value. It's clear the Street has never minded paying a higher multiple for Home Depot. It's worked out very well over the past five years, yes. But how about the next five?

With revenue growth of more than 7% in the recent quarter, which outperformed the 1% sales decline posted by Lowe's, Home Depot is certainly doing its part to make this debate, well, not much of a debate at all.

Unlike Lowe's, which is struggling with declining same-store sales (comps), Home Depot has figured out ways to not only capitalize on a revitalized housing recovery, but sustain its post-Hurricane Sandy momentum.

Profits soared 18%, helped by continued margin improvements including a year-over-year, 20-basis-point climb in gross margin. Operating margin expanded by 130 basis points contributing to a 22% surge in operating income. The company earned $1.22 billion, or 83 cents per share, which beat Street estimates by 8%.

Equally impressive was the company posted a solid 4.3% growth in overall comps, which is the metric that tracks sales performances of stores that have been opened at least one year. Just to give you an idea of how impressive this is, Lowe's just posted 70 basis-point decline in comps while Wal-Mart U.S. comps dropped 1.4%.

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