Retail Stock Flashing Buy Before Earnings

RH stock has pulled back to a key trendline ahead of earnings tomorrow

Mar 27, 2019 at 1:37 PM
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RH Inc (NYSE:RH) -- formerly known as Restoration Hardware -- will report quarterly earnings tomorrow, March 28. Ahead of the event, shares of the home goods retailer are flashing a historic buy signal on the charts.

RH stock has been sliding since its early March test of the $155-$160 region -- an area that's kept a lid on the equity's advances since June 2018. However, from a longer-term perspective, the shares are now back within one standard deviation of their 52-week moving average, after a lengthy stretch above this trendline.

Over the past 15 years, RH has endured a similar pullback seven other times, after which the equity was up an average of 8.12% a month later, per data from Schaeffer's Senior Quantitative Analyst Rocky White. Three months out, RH was higher by an impressive 28.94%, on average, and was in the black 86% of the time. From the stock's current perch of $128.51, similar one- and three-month rallies would put RH at $138.93 around the end of April, and at $165.70 -- in uncharted territory -- around the end of the second quarter.

RH stock chart March 27

What's more, RH shares are prone to big earnings reactions. The stock has averaged a one-day post-earnings swing of 20.8% over the past eight quarters, regardless of direction. Looking back six quarters, five of those reactions were to the upside, including a one-day surge of 22.5% after earnings last March.

Should the retail concern once again wow in the earnings confessional, a round of upbeat analyst attention could ensue. Currently, more than half of the analysts following RH maintain tepid "hold" ratings, leaving the door open for potential upgrades to lure more buyers to the table.

A short squeeze could also propel RH higher. Short interest represents more than 34% of the equity's total available float, or more than two weeks' worth of pent-up buying demand, at the stock's average pace of trading.
 

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