Is RH Stock Worth its Premium Pre-Earnings Price Tag?

RH has outperformed expectations on its last four earnings reports

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RH (NYSE:RH), formally known as Restoration Hardware, is an upscale American home-furnishings company. The company curates designs and styles in the luxury lifestyle market. RH sells its merchandise through its retail stores, catalog, and online. RH operates 70 galleries, 18 full-line design galleries, and six baby & child galleries. The luxury lifestyle company also has 36 outlet stores in the United States and Canada.

On Wednesday, May 26, RH announced that it will report its first quarter of fiscal 2021 financial results on Wednesday, June 9, following the market close. RH’s first quarter of fiscal year 2021 financial results press release will include a shareholder letter from Chairman and CEO, Gary Friedman. 

Looking back on the retailer's earnings reports since 2020, RH managed to outperform earnings expectations on all four of last year's quarterly reports. For the first quarter of 2020, RH beat analyst estimates by a margin of $0.23 per share and reported an earnings per share (EPS) of $1.27. For the second quarter of 2020, the retailer's profits increased to $4.90 per share, and beat expectations by a margin of $1.49. For the third quarter of 2020, RH posted another increase in earnings, rising to $6.20 per share and beating estimates by a margin of $0.90. For the final quarter of 2020, RH reported an EPS of $5.07 and beat expectations by a margin of $0.31. Analysts expect EH to report an EPS of $4.07 for the first quarter of 2021.

RH's stock has just about tripled in price compared to what it was worth a year ago, helped along by the ascending 100-day moving average, and more recently the 50-day moving average. The latter made quick work of capturing RH's pullback from its late-April record high of $733.05. Shares are up 43% year-to-date.

RH May 27

Overall, RH stock may be best suited for long-term investors when taking into account its high valuation. RH has only grown revenues by 16.7% since 2018, which makes it difficult to justify its sky-high price-earnings ratio of 61.76, as well as its inflated forward price-earnings ratio of 30.67. However, RH's bottom-line growth is much more positive, with the company increasing its net income by 23.7% in 2020 and by 81% since 2018. In general, investors may be better off waiting for a better entry point after RH stock's massive bullish run-up.

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