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Anatomy of Success: Restoration Hardware (RH)

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The Zacks Rank is a proven, simple-to-understand model for picking stocks which emphasizes earnings estimates and estimate revisions. Beginning and experienced investors alike find it useful, as it helps highlight companies of all types and sizes which are on track to outperform broader markets.

When a stock earns our best mark, the coveted Zacks Rank #1 (Strong Buy), we believe it is poised to beat the market over the next one to three months. It is also worth noting that we reserve this position only for the most impressive companies. In fact, out of the thousands of companies tracked by Zacks, just 5% earn this designation.

In the story below, you will learn about one particular company that helped show the strength of the Zacks Rank. If investors had followed our ranking system when it flagged this popular furniture retailer, they would have witnessed massive profits.

Restoration Hardware (RH - Free Report)

Restoration Hardware is a luxury brand in the home furnishings marketplace, offering product assortments across a number of categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, as well as baby and child products. The company operates stores, catalogs, and websites.

RH has been flagged by the Zacks Rank a number of times over the past year, but we first noticed that the stock might be up to something good when it earned a #2 (Buy) designation on Aug. 4, 2017. Quickly following this ranking was the stock’s first #1 (Strong Buy) of the period, which came just one week later.

This bullishness was likely due to analysts gearing up for the company’s upcoming earnings report, and once RH released that report on Sep. 6, we understood why. And mind you, the stock was already up 22% since early August. But then, the furniture giant reported quarterly earnings per share of $0.65, crushing the Zacks Consensus Estimate of $0.47 and improving by 48% from the year-ago period.

This outperformance was enough to inspire even more bullish analyst sentiment, and as positive estimate revisions came pouring in after the report, RH earned another #1 (Strong Buy) on Sep. 15. It held this top mark for eight weeks.

Restoration Hardware would go on to earn additional #1 (Strong Buy) rankings in December and February, never dipping below a #3 (Hold) in the process. Investors will also note that RH currently sports a #1 (Strong Buy), and it owes that to analyst bullishness in the wake of another great quarter for the company.

Just last month, RH reported a quadruple-digit percentage increase in earnings, with adjusted profits of $1.33 per share also crushing estimates by more than 30 cents. It truly has been a remarkable year for RH as the company shifted its focus slightly and saw massive improvements.

The below chart demonstrates the price performance for RH and 12-month forward looking EPS estimate (in red), starting from the time the stock first earned a Zacks Rank #2 (Buy).

As we can see, RH was a huge winner for those that followed the Zacks Rank. The stock is currently up more than 127% since being flagged by our model last year. Investors should know that our model is the simplest way to identify elite stocks poised to beat the market on a consistent basis.

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