NEW YORK (CNN/Money) - Hammered. Nailed. Sawed down. Investors did a do-it-yourself job on Home Depot Tuesday and the end result wasn't pretty.

The home-improvement retailer's stock fell $3.55, or 12.4 percent, to $25.05 on the heels of its third-quarter numbers. Although Home Depot's earnings were in line with Wall Street expectations, revenue came up short. Investors who bet on Home Depot's efforts to turn around and take back ground from Lowe's, its fast-growing competitor, were bitter.

"Anybody who had stepped up to the plate is stepping away," said Seth Tobias, who co-manages the hedge fund Circle T Partners. "Clearly the bottom hasn't been found yet." Tobias was among the investors stepping away, shedding his Home Depot stake Tuesday morning.

In its conference call, CEO Bob Nardelli, a General Electric alumnus who took the top spot at Home Depot in December 2000, struck a cautious tone, backing away from the 15 to 18 percent revenue growth the retailer had originally promised for this year.

The news might not have sounded so bad if it hadn't come just one day after Lowe's had beat earnings and revenue estimates handily and said that the fourth-quarter looked better than it had first forecast.

Together, the two companies' reports gave a one-two punch to investors who have entered into one of Wall Street's favorite trades -- go short Lowe's and go long Home Depot. Lowe's has been a big beneficiary of disarray at Home Depot, encroaching into major metropolitan markets and taking away market share and growing at a much faster pace.

But with a price-to-earnings ratio of 22.6 it also carries a much heftier valuation than Home Depot, which has a PE of 16. If Home Depot just got its house in order, the argument went, its stock would do great compared to Lowe's, which would no longer be running on an open field.

By going long one company and short the other, these investors also were insulating themselves against one of the big worries for both Home Depot and Lowe's -- that no matter which one wins, they're fighting it out over a shrinking pond. Continued strength in the housing sector and a record pace in mortgage refinancing have given householders both the incentive and the means to shell out cash to fix their homes up. But it looks like housing activity is beginning to cool, and with rates unlikely to get any lower, refinancing activity should start slowing as well.

The paired trade might work out yet. Home Depot is beginning to look attractive, Reed thinks. Conner & Birdwell chief investment officer Jeffrey Bronchick -- especially after Tuesday's slide. He thinks it is beginning to make the transition from a young company, where the focus is on breakneck expansion, to a more mature company where the growth is steadier and slower. As that happens revenue growth will slow, but because costs will come down earnings will be much better. While Bronchick doesn't own any Home Depot now, he said he's considering buying it over the next few weeks.

As for Lowe's, Bronchick won't touch it. "I know I'm not going to own Lowe's because it's going down," he said. "It's just overpriced."

But Jeff Matthews, president of the hedge fund Ram Partners, is short Home Depot and thinks that anyone who thinks it's a value is going to get burnt.

"Their model is broken," he said. "Nobody's liked shopping at Home Depot for the last five years. It's like shopping in an airplane hangar. And with Lowe's competitive now, you have a choice."

Matthews thinks the company remains overly focused on growth and that, with an ex-GE man at the helm, that's unlikely to change. He also finds fault with many of Nardelli's cost-cutting efforts. Home Depot has cut down on the total number of products it keeps stocked, for instance, and is shifting toward fewer full-time, and more part-time, staff. Such tactics may work at many of the businesses that GE runs, but they don't if you're a retailer.

Some customers really do want a particular radiator grill, and are frustrated that Home Depot doesn't carry it. Some customers really would like the kind of advice on how to, say, sweat pipe that they can't get from a part-time staffers.

"Nardelli is doing all of the things a GE guy would do," said Matthews. "And he's screwing it up."