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Buy This Soaring Retail Stock and Hold for More Growth?

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RH (RH - Free Report) shares have skyrocketed over the last five years, crushing Wall Street titans along the way. The luxury furniture retailer formally known as Restoration Hardware has cooled off a bit recently and it’s still poised to benefit from the booming housing and home improvement markets and more.

The Pitch

RH is a high-end furniture and home décor giant thriving in the changing retail landscape by keeping it somewhat old-school. Clearly, RH offers various digital and e-commerce offerings. But the firm still puts out huge physical catalogs and it continues to open large, luxury-centered stores, many with accompanying bars and restaurants in major cities around the U.S.

On top of that, RH is expanding its international footprint. The firm, under chief executive Gary Friedman, isn’t stopping at in-store eateries and fancy stores. The furniture company plans to enter the housing and hotel market, with RH Guesthouses and Residences.

Zacks Investment Research
Image Source: Zacks Investment Research

Other Fundamentals

The high-end retailer topped our second quarter estimates on September 8 and raised its FY21 view. RH acknowledged various supply chain setbacks that are impacting companies across nearly every sector of the economy. Luckily, RH remains confident in the face of these near-term worries on the back of bullish trends within the housing market and home-based spending.

Zacks estimates call for RH’s FY21 revenue to surge 32% to $3.8 billion, with FY22 set to climb another 8% higher. This year’s growth would mark its strongest as a public firm. “An important point to consider when analyzing the strong demand in the housing market is the migration of consumers to larger suburban and second homes,” the company wrote in prepared Q2 remarks.

“This trend is resulting in substantial square footage growth that is driving increased furniture and furnishings demand… Looking forward, several factors lead us to believe fiscal 2022 is shaping up to be the most exciting year on record for the RH brand.”

At the bottom-end of the income statement, RH’s adjusted FY21 EPS are expected to soar 45% and then climb slightly higher in FY22. RH’s consensus EPS estimates have been revised higher to help it land a Zacks Rank #1 (Strong Buy) right now.

The company is part of the Retail-Home Furnishings industry that includes Ethan Allen , Tempur Sealy (TPX - Free Report) , and Williams-Sonoma (WSM - Free Report) and sits in the top 16% of over 250 Zacks industries. Plus, Wall Street is high on the stock, with 10 of the 15 brokerage recommendations Zacks has at the moment coming in at “Strong Buys.”

Zacks Investment Research
Image Source: Zacks Investment Research

Bottom Line

RH stock has gone on a stellar run since its 2012 IPO, including a 440% climb in the last three years to blow by Apple (AAPL - Free Report) , Nike (NKE - Free Report) , Starbucks (SBUX - Free Report) , and countless other heavy hitters and household names. Luckily for those who might have missed out, RH has cooled down a bit despite being up 57% in 2021.

The stock has moved roughly sideways in the past three months and it sits near neutral RSI levels at 55. RH closed regular hours Monday 5% below its records, yet it trades at over a 20% discount to its own year-long highs at 25.9X forward earnings.

Therefore, investors might want to consider the luxury home furniture power that Warren Buffett’s Berkshire Hathaway has been high on.