What’s Driving RH’s Stock Price?



Stock performance

On July 6, 2017, RH (RH), formerly known as Restoration Hardware, hit a new 52-week high of $69.26 and closed the day at $67.68, which represents 19.1% growth since the announcement of its 1Q17 earnings on June 1, 2017.

In 1Q17, RH posted adjusted EPS (earnings per share) of $0.05 on revenues of $562.1 million. Analysts expected the company to post EPS of $0.05 on revenues of $556 million. The company posted same-store sales growth of 9%. The initiatives were taken by RH’s management to optimize its inventory. Greater-than-expected share buybacks and a stock upgrade from “hold” to “buy” by Deutsche Bank appear to have increased investors’ confidence, which led to a rise in RH’s stock price.

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Year-to-date performance

It’s important to note that 2016 was a transition year for RH. The company moved from a promotional model to a membership model. The transition caused RH’s stock price to fall 62.4%. However, 2017 started off on a good note. RH stock has risen 122.2% since the beginning of 2017. During the same period, Williams-Sonoma (WSM) and Bed Bath & Beyond’s (BBBY) stock prices fell 1.2% and 27.0%, respectively.

Notably, the S&P 500 INDEX (SPX) and the SPDR Dow Jones Industrial Average ETF (DIA) have returned 7.6%, and 7.9%, YTD (year-to-date), respectively. DIA has invested 4.9% of its holdings in home improvement retailers.

Series overview

In this series, we’ll look at RH’s revenue and EPS estimates for the next four quarters. We’ll also cover management’s guidance for 2017. Finally, we’ll look at RH’s valuation multiple and target price.

In the next part, we’ll look at RH’s revenue expectations for the next four quarters.


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