The Jensen Quality Growth Investment Team Sells Position in Home Depot
September 2025
Company Overview
Home Depot (HD) is the largest home improvement retailer in the United States, with approximately 2,300 stores and 470,000 employees across North America. Founded in 1978, Home Depot sells a wide array of home improvement products such as building materials, lawn and garden supplies, and décor, while also offering installation services. Home Depot is consistently ranked among the world’s most admired companies and is widely recognized for its scale, supply chain sophistication, and customer service.
Investment Thesis and What Led Us to Sell
Our thesis for Home Depot was based on their business fundamentals’ alignment with the key tenets of the Jensen Quality Growth Strategy’s investment selection process:
- Competitive Advantages: Dominant position in the home improvement retail space with its supply chain sophistication, strong brand loyalty, and customer retention.
- Earnings Stability: Industry-leading margins and return on invested capital (ROIC).
Valuation is another crucial tenet of the Strategy’s investment selection process. Although the company possesses the above competitive advantages and earnings qualities, Home Depot has risen above our estimate of its intrinsic value after a period of strong performance. Due to the elevated valuation, we believe there is limited near-term upside, as well as more favorable holdings for industry exposure. Therefore, the Investment Team liquidated Home Depot from the Strategy.
Outlook
Our near-term outlook for Home Depot is constrained. Amid a weak housing market and pressured consumer spending, 2025 likely marks a third consecutive year of flat or zero earnings growth due to these and other economic factors. We continue to favor Sherwin-Williams (SHW) and Equifax (EFX) for housing-related exposure in the Strategy. A portion of the proceeds from the sale of Home Depot was utilized to boost our position in Sherwin-Williams, which we believe offers superior top-line and margin growth potential at a more compelling valuation.
Despite our reserved near-term outlook, we maintain a favorable longer-term outlook for Home Depot. The company has
continued to invest in digital offerings, their supply chain, and professional engagement through the downturn, all strengthening the franchise overall. Additionally, structural demand for home improvement remains attractive given an aging U.S. housing stock, which also bodes well for the company long term.
Strategy holdings are subject to change and should not be considered recommendations to buy or sell any security. Please click here for a listing of the Quality Growth Strategy’s current holdings.
The company discussion is solely intended to illustrate the application of our investment approach and is not to be considered a recommendation by Jensen. The specific security identified is taken from a representative accounts of the Jensen Quality Growth Strategy and does not represent all of the securities purchased and sold for the Strategy. Our views expressed herein are subject to change and should not be construed as a recommendation or offer to buy or sell any security and are not designed or intended as a basis or determination for making any investment decision for any security. Our discussions should not be construed as an indication that an investment in a security has been or will be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of any security discussed herein.
Certain information contained in this material represents or is based upon forward-looking statements, which can be identified by the use of terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “target,” “project,” “estimate,” “intend,” “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of a client account may differ materially from those reflected or contemplated in such forward-looking statements.
This information is current as of the date of this material and is subject to change at any time, based on market and other conditions.
Jensen Investment Management, Inc., is an investment adviser registered under the Investment Advisers Act of 1940. Registration with the SEC does not imply any level of skill or training. Although taken from reliable sources, Jensen cannot guarantee the accuracy of the information received from third parties.
© 2025 Jensen Investment Management
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