Insights

How RH Stock Gained 3% in April While the S&P 500 Lost 9%

LolWhat happened
Shares of luxury furniture retailer RH (NYSE: RH) gained 3% in April according to data provided by S&P Global Market Intelligence. The company’s stock has been steadily decreasing since the beginning of the year, and it was already so cheap that investors began to see an opportunity.
However, it’s lost 13% already in May as the market has tanked.
Image source: Getty Images.

So what
RH sells upscale furniture through its website and small collection of physical stores that it calls “galleries.” It made a big rebound from pandemic declines last year, with revenue increasing 32% year over year in 2021 to $3.8 billion, and net income increasing 153% to $689 million.
The company has been turning out excellent performance despite supply chain backups and delays in new gallery openings. It has big plans to expand, rolling out new collections, opening more galleries both in the U.S. and in Europe, and moving into hospitality with upscale restaurants, residences, and a yacht. It sees itself developing beyond furniture into a luxury brand, offering a wide array of products and services under this banner, leading to increased sales and profits.
However, as a luxury brand, it typically doesn’t perform well when times are challenging. It already saw “softening” demand since the conflict in Ukraine began and economic volatility followed. 
Therefore, management provided a conservative growth estimate. It’s expecting decelerating growth in 2022 as it builds on top of 2021 growth. For the first quarter, it’s expecting revenue to increase 7% to 8% year over year on top of 78% last year, and full-year revenue to increase 5% to 7%. It sees a $7 trillion to $10 trillion total market opportunity. It also announced a 3-for-1 stock split in March that has not yet gone through.
Now what
RH has Warren Buffett’s confidence, with Berkshire Hathaway holding about 8% of the company.
Its stock has been a huge gainer since the pandemic, but it’s fallen 45% since the beginning of the year. Even at this price, it’s gained 190% over the past three years.
Shares seem undervalued at the new, lower price, trading at only 13 times trailing-12-month earnings. Market fears have driven the price down, and this seems like the type of opportunity where Buffett would say to be greedy when others are fearful. However, the ongoing volatility and economic flux mean that the company may not post high growth in the short term. This is a compelling buy, however, for investors with a long-term outlook.
Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares) and RH. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy. –

LolWhat happened

Shares of luxury furniture retailer RH (NYSE: RH) gained 3% in April according to data provided by S&P Global Market Intelligence. The company’s stock has been steadily decreasing since the beginning of the year, and it was already so cheap that investors began to see an opportunity.

However, it’s lost 13% already in May as the market has tanked.

Image source: Getty Images.

So what

RH sells upscale furniture through its website and small collection of physical stores that it calls “galleries.” It made a big rebound from pandemic declines last year, with revenue increasing 32% year over year in 2021 to $3.8 billion, and net income increasing 153% to $689 million.

The company has been turning out excellent performance despite supply chain backups and delays in new gallery openings. It has big plans to expand, rolling out new collections, opening more galleries both in the U.S. and in Europe, and moving into hospitality with upscale restaurants, residences, and a yacht. It sees itself developing beyond furniture into a luxury brand, offering a wide array of products and services under this banner, leading to increased sales and profits.

However, as a luxury brand, it typically doesn’t perform well when times are challenging. It already saw “softening” demand since the conflict in Ukraine began and economic volatility followed. 

Therefore, management provided a conservative growth estimate. It’s expecting decelerating growth in 2022 as it builds on top of 2021 growth. For the first quarter, it’s expecting revenue to increase 7% to 8% year over year on top of 78% last year, and full-year revenue to increase 5% to 7%. It sees a $7 trillion to $10 trillion total market opportunity. It also announced a 3-for-1 stock split in March that has not yet gone through.

Now what

RH has Warren Buffett’s confidence, with Berkshire Hathaway holding about 8% of the company.

Its stock has been a huge gainer since the pandemic, but it’s fallen 45% since the beginning of the year. Even at this price, it’s gained 190% over the past three years.

Shares seem undervalued at the new, lower price, trading at only 13 times trailing-12-month earnings. Market fears have driven the price down, and this seems like the type of opportunity where Buffett would say to be greedy when others are fearful. However, the ongoing volatility and economic flux mean that the company may not post high growth in the short term. This is a compelling buy, however, for investors with a long-term outlook.

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares) and RH. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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