Home Depot heads into its third-quarter results on 17 November with its shares riding a sharp housing-led rally, and investors waiting to see whether the stores can match the optimism already priced into the stock.

Yahoo Finance reported on 5 November that the shares had gained 12 percent in the week through Wednesday, with most of the move coming after the 4 November midterm elections lifted housing stocks. The shares closed 6.5 percent higher on Wednesday 4 November alone, even as the S&P 500 and the Nasdaq 100 moved in the opposite direction over the same week.

The rally rests on a bet that housing affordability measures and lower mortgage rates could revive home sales and larger remodelling projects. Yet the housing data so far tells a more cautious story. Yahoo Finance noted that September existing-home sales ran at a 3.99 million annual pace, down 2.2 percent from a year earlier, a gap between the market narrative and current housing activity that the earnings report will have to address.

Home Depot's own recent trading figures show why investors still need confirmation from the operating business. In the fiscal second quarter, sales rose 5.7 percent to 47.9 billion dollars, but 1.4 billion dollars of the 2.6 billion dollar increase came from the GMS acquisition rather than underlying store growth. Comparable customer transactions fell 1.0 percent, while the average ticket increased 2.8 percent as shoppers concentrated on smaller projects.

That mix leaves larger renovation demand exposed to housing conditions. If homeowners are not moving and not starting big projects, the ticket growth seen so far may reflect higher prices on smaller jobs rather than a genuine recovery in demand.

Analysts expect the company to report earnings of 3.86 dollars per share for the quarter ending in October, according to Zacks, which would be a year-on-year increase of 3.21 percent. The Zacks Earnings ESP, which compares the most accurate estimate with the consensus, stands at plus 0.80 percent, suggesting analysts have recently become more bullish on the company's prospects. Combined with a Zacks Rank of 3, or Hold, that points to another beat being possible, though Zacks cautions that a positive ESP is not a guarantee.

Home Depot has a recent habit of beating expectations. It topped estimates by 2.67 percent on average across its last two quarters. In the most recent quarter it was expected to post earnings of 4.71 dollars per share but reported 4.92 dollars, a surprise of 4.46 percent. In the quarter before that, it produced 3.43 dollars against a 3.40 dollar estimate.

Management's fiscal-year outlook calls for adjusted earnings per share to be flat to up 4 percent from the 14.69 dollars reported last year, with comparable sales growth of flat to 2 percent. The 17 November report, with a conference call at 9:00 a.m. Eastern Time, will therefore give investors a defined checkpoint for transactions, comparable sales and the contribution from larger projects.

For shareholders, the question is straightforward. The election rally has already lifted the shares on the hope of a housing recovery. The figures on 17 November will show whether that hope is turning into footfall, bigger baskets and firmer guidance, or whether the rally is still running ahead of the stores.