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As the leading home improvement chain, with a market cap of $334 billion, most people are likely familiar with Home Depot (NYSE: HD). Its shares have done decently well in the past five years, generating a total return of 80%.

Some investors might view that as a respectable gain, but it actually fell short of the S&P 500's total return of 103%. As we look toward the next five years, where will this top retail stock be?

Catering to professionals

Through its network of 2,337 stores, of which a small portion are in Canada and Mexico, Home Depot sells various supplies and tools that help people take care of renovation projects. It has two primary customer groups: DIYers and professionals, like contractors, plumbers, and electricians.

The business receives about half of its revenue from each of these cohorts. But it's the pro segment that has typically grown at a faster pace, especially because that group has been a major focal point for the management team, with offerings like a loyalty program, VIP experiences, and preferred pricing to serve their needs.

And that would be a huge benefit. Professionals handle more complex home upgrades, usually working on multiple projects at once. They lean on Home Depot as a mission-critical supplier. Consequently, they visit stores more often and spend more money, which results in strong sales per square foot for Home Depot. I think five years from now, Home Depot will generate an even greater percentage of its sales from pros.

Boosting investor returns

When compared to many younger companies out there, Home Depot is a dinosaur. It's been around since 1978, and today, it's a mature enterprise. But this isn't a bad thing. It's consistently profitable, which is what long-term investors should want to see.

In the past five years, Home Depot's gross margin and operating margin have averaged a solid 33.7% and 14.5%, respectively. There's really no reason to believe that this kind of profitability is under any sort of threat given the generally steady and predictable nature of the business.

For investors, this is good news, because it means Home Depot's attractive capital allocation policy will continue. In fiscal 2021, 2022, and 2023, the company paid a total of $23.2 billion in dividends. Moreover, $29.5 billion of share buybacks were conducted during those years. These are huge capital outlays that boost shareholder returns, a corporate policy that should continue over the next five years.

Should you buy Home Depot stock?

Home Depot shares trade at a price-to-earnings ratio that's in line with its trailing five- and 10-year averages. This might compel some investors to want to buy and hold the stock, because it appears to be reasonably valued.

Investors who are more focused on Home Depot's latest financial results are right to be concerned, though. The company reported a 3.2% same-store sales decline in fiscal 2023 (ended Jan. 28). And executives believe Home Depot will post a 1% dip this fiscal year. The current macro climate, with high interest rates and ongoing inflationary pressures, continues to discourage shoppers from spending on big-ticket items.

However, it's always best to try and look out over the next five years and beyond. Home Depot operates in a massive and fragmented industry, which should provide a favorable backdrop to drive sustainable long-term growth. It has the brand recognition, inventory availability, and omnichannel capabilities that smaller competitors lack.

It's difficult to say whether the stock will outperform the S&P 500, which hasn't happened in the past five years. But at the end of the day, Home Depot seems like a safe and reliable business to invest in.

Should you invest $1,000 in Home Depot right now?

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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.