Is the selloff from Home Depot's earnings overdone?

Home improvement retailer Home Depot (NYSE: HD) reported earnings on November 19. The company beat its EPS estimate, but missed its revenue estimate and lowered its revenue forecast for the year. The stock has tumbled 8.5% since the earnings report. Personally, I think the selloff is overdone and is providing investors with an opportunity at this time.

Home Depot has seen its earnings grow by 21% per year over the last three years and earnings were up 1% in the third quarter. Revenue has increased at a rate of 6% per year over the last three years and they were up by 4% in the third quarter.

When you combine the sales growth with the profit margin and the return on equity, you get the Tickeron SMR rating. Home Depot's SMR rating is 1 and that is the best rating a company can get. It indicates very strong sales and a profitable business model. SMR (Sales, Margin, Return on Equity) rating is based on comparative analysis of weighted Sales, Income Margin and Return on Equity values compared against S&P 500 index constituents.

In addition to the SMR rating being well above average, the Profit vs. Risk Rating for Home Depot is 19, indicating low risk on high returns. The average Profit vs. Risk Rating for the industry is 60, placing this stock well above average.

The Tickeron PE Growth Rating is 38, pointing to consistent earnings growth. The PE Growth rating is based on a comparative analysis of stock PE ratio increase over the last 12 months compared against S&P 500 index constituents. A rating of 1 indicates highest PE growth while a rating of 100 indicates lowest PE growth.

Not all of Home Depot's ratings are above average. For instance, the Valuation Rating is at 64 and it indicates that the company is fair valued in the industry. A rating of 1 points to the most undervalued stocks, while a rating of 100 points to the most overvalued stocks. With the 64 rating, the company is slightly worse than average on its valuation rating.

The same can be said for the Price Growth Rating, Home Depot is slightly worse than average with a rating of 69. This rating indicates that stock price has grown at a slightly slower pace than S&P 500 components. The Price Growth Rating looks at price growth over the last 12 months.

Looking at the daily chart for Home Depot over the past year, the stock has been trending higher with a trend channel marking the various cycles within the overall upward trend. The lower rail of the channel is formed by the low from last December and the lows from May and August. The stock just hit the lower rail earlier this week.

We also see on the chart that Home Depot's overbought/oversold indicators have both reached oversold territory as a result of this pullback. The stochastic readings made a bullish crossover on November 25 and that could be a sign that the stock is ready to bounce.

The sentiment toward Home Depot is average to slightly skewed to the bearish side. There are 33 analysts covering the stock with 19 "buy" ratings, 13 "hold" ratings, and one "sell" rating. This puts the overall buy percentage at 57.6% and that is a sign of slightly more pessimism than the average stock.

The short interest ratio is at 3.1 and that reading falls in the average range. This reading is from October 31 and doesn't reflect what has happened to short interest since the earnings report. We should get the mid-November reading in the next few days and the end of November report will come out in the second week of December. That will be the first short interest report that reflects what has happened since the earnings report.

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