Home Depot (HD) is one of America's largest retailers, boasting a sizable market cap of around $285 billion. Many types of retailers have had their sales suffer amid COVID-19, as physical store traffic transitioned to a digital one.

However, Home Depot's sales remained robust, as the company reported 7.1% revenue growth in its latest earnings report, despite the market's headwinds. The work-from-home economy boosted consumer interest in home improvement and interior redesign – two categories in which Home Depot specializes.

The quarter's net profits were $2.25B, which, along with some extra cheap debt issuance, increased Home Depot's cash position to an all-time high of $8.7B. We believe that the company plans to use these funds to reduce its share count further, as it has historically done over the past two decades.

Since 2010 alone, the company has repurchased and canceled 36% of its total shares outstanding. The company's store count of nearly 2,300 stores has barely grown over the same period. A sizeable portion of Home Depot’s ~11% CAGR EPS growth over the last decade is from the company’s generous share repurchase program.

Management’s commitment towards returning capital shareholders, however, does not stop there. Home Depot is a dividend-growth favorite in the investing community, displaying a DPS CAGR of 21.4% over the past decade.  Dividend growth investors are not the only ones keen on Home Depot.  Fast-growing hedge fund Athanor Capital has a position in the home goods retailing giant.

To deliver strong returns, however, the company has taken on a sizeable amount of long-term debt. Its position amounts to an all-time high of $30.3B. To be fair, Home Depot is currently enjoying a low cost of debt of around 3.6%, so it makes sense for management to utilize such funds the way it does.

However, what concerns us is that should debt refinancing become more expensive in the future, due to macro-economic reasons, the company may find itself having to pay much higher interest. While the current interest cover ratio is ample, at around 12.55 its operating cash flows, the company's long-term debt position doesn't cease to present a modest risk.

We believe that Home Depot holds a significant moat. The company benefits from a strong housing market and advancements in its merchandising and distribution network. The company is a cash cow, which should unlock further economies of scale. Its multi-year investment plan includes around $8.7B to be allocated in the company's stores, technology, and supply chains. We believe that such investments will create further efficiencies going forward.

In the final analysis, Home Depot has been a consistent return generator. Considering its latest earnings report, and the ever-growing, Pinterest-inspired home improvement economy, the stock is likely set to trend higher. We believe that the company makes for a compelling long-term investment.