Can Home Depot (HD) Stock Rebound in 2026? Valuation Attractiveness Amid Macroeconomic Headwinds and Strategic Acquisitions

The question of whether Home Depot (HD) can stage a meaningful rebound in 2026 hinges on a delicate balance between its current valuation, strategic investments, and the trajectory of the broader macroeconomic environment. While the company's financial metrics suggest a premium valuation, its aggressive acquisition strategy and positioning in a potentially recovering housing market offer a counterpoint to the skepticism.

Valuation: A Premium Priced on Optimism

Home Depot's forward price-to-earnings (P/E) ratio of 22.88 and price-to-book (P/B) ratio of 29.41 as of 2025 according to Yahoo Finance place it well above industry averages. For context, the retail-cyclical sector's average P/E is 16.6, while its P/B ratio is a mere 1.59 according to Gurufocus. Even within the home improvement niche, where the industry P/B ratio peaks at 61.6x according to DCF Modeling, Home Depot's valuation appears elevated. This premium reflects market expectations of long-term growth, despite near-term challenges. For instance, adjusted diluted EPS are projected to decline by 5% in fiscal 2025, and the company's third-quarter revenue growth of 2.8%-driven largely by acquisitions-was accompanied by a meager 0.2% rise in comparable sales. Investors must weigh whether these metrics justify the current valuation or signal overreach.

Strategic Acquisitions: Building for the Future Home Depot's 2025 acquisitions, including SRS Distribution and GMS Inc., are central to its 2026 growth narrative. These deals aim to strengthen its professional customer segment and expand wholesale capabilities, aligning with the company's long-term goal of capturing a larger share of the home improvement market. For example, GMS Inc. contributed $900 million in sales during the third quarter of 2025, demonstrating immediate revenue synergies. However, the full impact of these acquisitions will depend on integration efficiency and their ability to offset macroeconomic headwinds. As one analyst notes, "The success of these investments will hinge on Home Depot's capacity to leverage them" in a normalized interest rate environment.

Macroeconomic Headwinds and Housing Market Outlook

The housing market, a critical driver for Home Depot's business, remains a mixed bag. Housing turnover is at a 40-year low, and first-time buyer participation has dropped to an all-time low of 21% in 2025, underscoring affordability challenges. Yet, forecasts for 2026 paint a cautiously optimistic picture. Fannie Mae predicts mortgage rates will fall to 5.9% from 6.4% in 2025, while the National Association of Realtors (NAR) anticipates a 14% increase in home sales and a 4% rise in prices. These trends could stimulate demand for home improvement services, particularly if wage growth and multigenerational living trends offset affordability constraints according to Redfin. However, the recovery is unlikely to be uniform, with high-end markets outperforming lower-end segments according to NAR.

The Path to a 2026 Rebound

For Home Depot to deliver a 2026 rebound, three conditions must align:
1. Rate Normalization: A decline in mortgage rates to 5.9% or lower could catalyze housing activity, directly boosting demand for Home Depot's products.
2. Acquisition Synergies: The SRS and GMS acquisitions must translate into measurable revenue growth and margin expansion, particularly in professional markets according to Investing.com.
3. Inventory Balance: A more balanced housing market-with rising inventory and improved buyer negotiating power-could stabilize consumer confidence according to Realtor.com.

Yet, risks persist. If interest rates remain elevated or housing demand lags expectations, Home Depot's premium valuation could face downward pressure. Additionally, the company's focus on professional customers may not fully offset softer retail demand in a weak housing environment according to AOL.

Conclusion

Home Depot's 2026 rebound potential rests on its ability to navigate macroeconomic turbulence while capitalizing on strategic investments. While its valuation appears stretched relative to current earnings, the company's long-term positioning in a recovering housing market and its aggressive acquisition strategy provide a rationale for optimism. Investors should monitor mortgage rate trends, housing sales data, and the integration of recent acquisitions to gauge whether the market's expectations are being met. In a world of uncertainty, Home Depot's success will depend not on avoiding headwinds but on outmaneuvering them.