Don’t Sweat the Sell-Off, Buy the Post-Earnings Dip in At Home Stock

There’s no need to hit the panic button on At Home (NYSE:HOME) even though HOME stock plunged in early September.

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The fall came after the home goods retailer reported second quarter numbers that — while very strong — weren’t strong enough to justify what had been a 384% rally in the stock in the three months leading up to the print.

This is a perfectly natural, totally normal sell-off in a stock that’s been red-hot. The sell-off just looks super big because the rally has also been super big. Indeed, if you back out and look at the big picture, HOME stock is still up 250% over the past three months.

Focusing on that big picture, it becomes clear that the long-term growth narrative supporting At Home is very compelling, and that the numbers imply significant upside in the stock from here over the next 5 to 10 years.

So don’t stress this sell-off. Instead, embrace it. Buy the dip. Hold for the long haul.

Here’s a deeper look.

Strong Earnings and HOME Stock

Don’t let the huge sell-off in HOME stock fool you. At Home’s second quarter earnings report was fabulous.

In numbers:

• Net sales rose 50.5%.
• Comparable sales rose 42.3%.
• Store count rose 7.4%.
• Gross margins expanded 880 basis points to 38.1%.
• Adjusted SG&A dollars dropped 10.8% year-over-year, leading to SG&A rate compression of 900 basis points.
• Adjusted operating margins nearly quadrupled year-over-year to 24.6%.
• Operating profits rose 446%.

Broadly, the quarter showed that At Home continues to win share in the burgeoning home goods retail market, thanks to physical footprint expansion, as well as the company’s unique value prop as an all-in-one home goods superstore.

This momentum isn’t slowing down, either. While the company did not issue an official guide, management commented on the conference call that third quarter comparable sales trends to-date are in-line with Q2, so up about 40%.

If the numbers were so great, then why did HOME stock sell-off?

Because management already reported preliminary second quarter numbers back in late July, and the numbers turned out to be exactly what management said they would be. Investors who have been bidding up the stock ferociously over the past few weeks probably wanted those numbers to be better than the prelim numbers, and/or were looking for a strong Q3 guide.

They got neither. So selling ensued.

It’s just near-term trading dynamics. Nothing to worry about in the big picture.

Compelling Long-Term Growth Narrative

Zooming out, the big picture, long-term growth narrative supporting At Home and HOME stock is very compelling.

In short, the company has a unique opportunity to leverage its all-in-one, superstore shopping experience to nationally consolidate the fragmented U.S. home goods retail market.

If you’ve ever remodeled your kitchen, spruced up your bedroom, or upgraded the patio furniture, then you know that the home goods shopping process is not simple. That’s because the market is highly fragmented. Whereas companies like Best Buy (NYSE:BBY) and Home Depot (NYSE:HD) offer an all-in-one, superstore shopping experience for buying consumer electronics and building materials, respectively, no such store exists in home goods.

At Home has an opportunity to turn into that superstore for the home goods sector, and consolidate this retail category that is overly fragmented.

That’s because At Home has all the ingredients necessary to be a home goods superstore.

The stores are massive. They average about 100,000 square feet, so on par with a Walmart or Target (NYSE:TGT) store. That’s about 2X the size of your average Bed Bath & Beyond (NASDAQ:BBBY) store and 4X the size of your average HomeGoods store.

The product selection is enormous. Every At Home superstore has over 50,000 product SKUs. And the prices are cheap. The average price point at At Home is just $15.

Leaning into its size, product and price advantages, At Home has a compelling opportunity to turn into the Home Depot or Best Buy of the home good sector over the next 10 years.

Tons of Upside Potential

The numbers imply significant upside potential for HOME stock in the long run.

At Home exited Q2 with 219 stores.

HomeGoods has 800+ stores. Bed Bath & Beyond has 1,000+ stores. There’s tons of real estate growth potential here. Indeed, management thinks At Home can continue to grow its store base by ~10% per year to 600+ stores at scale.

Each one of those stores does about $6 million in annual sales. Store level profit margins at the stores hover around 30%. The math there implies $3.6 billion in 2030 sales, and $1.1 billion in store-level profits.

Taking out $250 million for corporate overhead, $150 million for depreciation and amortization, $40 million for interest expense and 20% for taxes, you’re left with potential net profits in 2030 of over $500 million.

A 20X multiple on that implies a potential future valuation for At Home of $20+ billion.

This is a $1 billion company today.

Bottom Line on HOME Stock

At Home stock is one of my favorite long-term, small-cap growth stocks to buy for the next 5 to 10 years. The post-Q2 earnings sell-off does not change the long-term bull thesis. Rather, it’s just the stock taking a breather after a torrid run higher.

To that end, long-term investors shouldn’t run from HOME stock here. They should embrace current weakness. Buy the dip. Weather the storm. And hold for the long haul.