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RH Surges 260% Over the Past Year: Will the Rally Continue?
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RH (RH - Free Report) has been gaining strength from its comprehensive and compelling collection of luxury home furnishings as well as solid momentum of housing and repair & remodeling markets. Shares of this leading luxury retailer in the home furnishing space have rallied 260.3% over the past year, outperforming the Zacks Retail - Home Furnishings industry’s 158.8% gain. This trend is expected to continue in the near term, courtesy of its solid performance for fiscal 2020 despite COVID-led disruptions. RH, after reporting stellar fiscal 2019 performance, posted stronger-than-expected results for fiscal 2020 supported by solid gross and operating margin expansion.
Moreover, fiscal 2021 earnings estimates of this Zacks Rank #3 (Hold) company have moved 0.6% upward over the past 30 days. This positive trend signifies bullish analysts’ sentiments, indicating robust fundamentals and the expectation of outperformance in the near term. However, rising raw material prices and freight prices are concerns.
What’s Working in Favor?
Solid Housing Market Momentum: Booming real estate activity in second home markets, an accelerated shift of families to larger suburban homes and an uptick in homebuilding should drive increased spending in the markets served by RH.
Declining mortgage rates, and demand for more space and amenities to accommodate work from home as well as at-home learning have led to a surge in homebuying and home improvement projects. This will definitely lead to higher demand for RH’s products. RH Core demand increased 36% for fourth-quarter fiscal 2020. Revival of housing demand has been a boon for Beacon and other companies like Ethan Allen Interiors Inc. , Haverty Furniture Companies, Inc. (HVT - Free Report) and Tempur Sealy International, Inc. (TPX - Free Report) . While Ethan and Haverty sport a Zacks Rank #1 (Strong Buy), Tempur carries a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Given solid momentum in the business, RH expects revenue growth in the range of 15-20%, with adjusted operating margin expansion of 100-200 basis points and ROIC in excess of 60% for fiscal 2021. RH expects first-quarter fiscal 2021 revenues to grow at least 50% and adjusted operating margin to be 20%.
Growth Initiatives to Drive Profitability: The company’s management emphasized on a number of strategic initiatives to evolve RH from a home furnishings retailer to a luxury lifestyle brand over time including: 1) a transformation of the website to "The World of RH", 2) expansion of interior design services to include architecture and landscape architecture; 3) the launch of RH Residences, or furnished homes and condos; 4) launch of RH3, a luxury yacht that customers can rent for travel to the Caribbean and Mediterranean; and 5) international expansion in Europe.
Solid Prospects: The company has solid prospects, as is evident from the Zacks Consensus Estimate for fiscal 2021 earnings of $20.92 per share, which indicates 17.3% year-over-year growth. RH is a great pick in terms of value investment, supported by a Growth Score of A.
Also, RH has a solid VGM Score of B. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics.
Higher Return on Equity (ROE): RH’s trailing 12-month ROE is indicative of growth potential. ROE in the trailing 12 months is 207.7%, much higher than the industry’s 22.1%, reflecting the company’s efficient usage of shareholders’ funds.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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RH Surges 260% Over the Past Year: Will the Rally Continue?
RH (RH - Free Report) has been gaining strength from its comprehensive and compelling collection of luxury home furnishings as well as solid momentum of housing and repair & remodeling markets. Shares of this leading luxury retailer in the home furnishing space have rallied 260.3% over the past year, outperforming the Zacks Retail - Home Furnishings industry’s 158.8% gain. This trend is expected to continue in the near term, courtesy of its solid performance for fiscal 2020 despite COVID-led disruptions. RH, after reporting stellar fiscal 2019 performance, posted stronger-than-expected results for fiscal 2020 supported by solid gross and operating margin expansion.
Moreover, fiscal 2021 earnings estimates of this Zacks Rank #3 (Hold) company have moved 0.6% upward over the past 30 days. This positive trend signifies bullish analysts’ sentiments, indicating robust fundamentals and the expectation of outperformance in the near term. However, rising raw material prices and freight prices are concerns.
What’s Working in Favor?
Solid Housing Market Momentum: Booming real estate activity in second home markets, an accelerated shift of families to larger suburban homes and an uptick in homebuilding should drive increased spending in the markets served by RH.
Declining mortgage rates, and demand for more space and amenities to accommodate work from home as well as at-home learning have led to a surge in homebuying and home improvement projects. This will definitely lead to higher demand for RH’s products. RH Core demand increased 36% for fourth-quarter fiscal 2020. Revival of housing demand has been a boon for Beacon and other companies like Ethan Allen Interiors Inc. , Haverty Furniture Companies, Inc. (HVT - Free Report) and Tempur Sealy International, Inc. (TPX - Free Report) . While Ethan and Haverty sport a Zacks Rank #1 (Strong Buy), Tempur carries a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Given solid momentum in the business, RH expects revenue growth in the range of 15-20%, with adjusted operating margin expansion of 100-200 basis points and ROIC in excess of 60% for fiscal 2021. RH expects first-quarter fiscal 2021 revenues to grow at least 50% and adjusted operating margin to be 20%.
Growth Initiatives to Drive Profitability: The company’s management emphasized on a number of strategic initiatives to evolve RH from a home furnishings retailer to a luxury lifestyle brand over time including: 1) a transformation of the website to "The World of RH", 2) expansion of interior design services to include architecture and landscape architecture; 3) the launch of RH Residences, or furnished homes and condos; 4) launch of RH3, a luxury yacht that customers can rent for travel to the Caribbean and Mediterranean; and 5) international expansion in Europe.
Solid Prospects: The company has solid prospects, as is evident from the Zacks Consensus Estimate for fiscal 2021 earnings of $20.92 per share, which indicates 17.3% year-over-year growth. RH is a great pick in terms of value investment, supported by a Growth Score of A.
Also, RH has a solid VGM Score of B. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics.
Higher Return on Equity (ROE): RH’s trailing 12-month ROE is indicative of growth potential. ROE in the trailing 12 months is 207.7%, much higher than the industry’s 22.1%, reflecting the company’s efficient usage of shareholders’ funds.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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