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Buy Home-Focused Retailer RH Stock Before Earnings for More Growth?

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RH (RH - Free Report) , formerly known as Restoration Hardware, is set to release its fourth quarter fiscal 2020 financial results on Wednesday, March 24. The high-end furniture and home décor stock has skyrocketed over 400% in the last year to destroy fellow coronavirus stars such as Shopify (SHOP - Free Report) as Wall Street clamors for home-focused stocks. 

Furniture & Beyond

RH is a high-end furniture and home décor powerhouse that’s grown its revenue at a solid clip since its debut on the public markets in 2012. RH is still focused on its catalogs, as well as improving its e-commerce business. And the company has grown while the likes of Macy’s (M - Free Report) have struggled in the changing retail landscape.

The California-headquartered firm has also zigged while others have zagged in the Amazon (AMZN - Free Report) age by going bigger. RH has opened large, luxury-centered stores, many with accompanying bars and restaurants in major cities from Chicago to New York. RH is also trying to expand its international business.

Wall Street was pleased to hear efforts to possibly expand and diversify beyond retail. Chief executive Gary Friedman teased RH’s plans to enter the housing and hotel market in a letter to shareholders over the summer. “Our Hospitality efforts will continue to elevate the RH brand as we move beyond the four walls of our Galleries into RH Guesthouses where our goal is to create a new market for travelers seeking privacy and luxury in the $200 billion hotel industry,” Friedman wrote.

“Our ecosystem will come full circle as we begin to conceptualize and sell spaces, moving the brand beyond the $200 billion home furnishings market into the $1.7 trillion North American housing market by offering beautifully designed and furnished turnkey homes and condominiums with the introduction of RH Residences.”

Outlook & Home Spending

RH in December beat our Q3 estimates, with its revenue up 24% for its best top-line growth in years. Zacks estimates call for its fourth quarter sales to jump 20% to help lift its adjusted earnings by 29%. The company’s strong second-half of 2020, after it was hit hard in the early months of the coronavirus, is projected to help its full-year revenue pop 7% to reach $2.83 billion.

At the bottom end, RH’s FY20 EPS figure is projected to soar 50%. Peeking ahead to 2021, the furniture retailer is projected to grow its sales and earnings by another 10% each.

RH’s consensus earnings estimates have remained unchanged recently to help it grab a Zacks Rank #3 (Hold). And the company boasts a solid history of quarterly earnings beats, including a 30% average in the trailing four quarters.

RH is part of the Zacks Retail-Home Furnishings space that includes Ethan Allen (ETH - Free Report) , Tempur Sealy (TPX - Free Report) , and others, and is in the top 7% of our over 250 Zacks industries. This strength comes as the U.S. housing market booms and people spend on various home updates and improvements.

Last year, U.S. home sales hit their highest levels since 2006. Better yet, the housing growth/update spending is likely to continue since millennials are now driving the housing market.

Bottom Line

As we touched on at the outset, RH has soared during the last year, up over 400%. This is part of a much larger five-year run that’s seen it climb nearly 1,200% to blow by the S&P 500, Amazon, Target (TGT - Free Report) , and its industry. The stock popped again on Thursday as the market fell to close regular trading at $485.88 a share.

Luckily, RH has cooled off a bit to trade about 7% below its mid-January records. And despite its overall run, the stock sits just above neutral levels in terms of RSI at 54, which means it could have plenty more room to climb. Plus, its valuation is hardly stretch, trading at a substantial discount against its industry and right near its own year-long median—and just above the S&P 500.

Clearly, RH appears worth considering. And investors should know that Warren Buffett’s Berkshire Hathaway took a position in RH last year and 11 of the 14 broker ratings Zacks has are “Strong Buys.”

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