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Here’s Why You Should Add RH Stock to Your Portfolio Now

Zacks

Shares of RH RH, formerly known as Restoration Hardware, have been riding high of late. This home furnishings retailer recently reported stellar second-quarter fiscal 2017 results with both earnings and revenues beating the Zacks Consensus Estimate. This Zacks Rank #1 (Strong Buy) company has solid prospects and should make a valuable addition to your portfolio.

Let us delve into other factors which make this stock a lucrative pick.

Share Price Performance

The company’s shares have skyrocketed more than 131% year to date compared with the industry’s rise of 3.4%. Also, RH has outperformed the industry in each of one-week, four-week, 12-week and 52-week time frames. The overall improvement in the U.S. economy along with the rise in housing momentum is expected to further drive RH’s performance.


Also, Zacks Home Furnishing industry finds a place in the top 30% of the Zacks Industry Rank. A good industry rank is indicative of robust growth potential.

Solid Growth Prospects

RH reported a historical (three-five year) earnings per share (EPS) growth rate of 10.7% compared with the industry’s average of 9.2%. Moreover, the company is aiming to grow at a rate of 106.4% this year, significantly higher than the industry’s average of 6.9%.

Meanwhile, the company’s sales are expected to increase 15.2% in the current year compared with the industry’s average growth of just 3.6%. Hence, RH makes a great pick in terms of growth investment supported by Growth Score of A.

Estimates on the Upswing

We note that earnings estimates for RH have exhibited an uptrend, reflecting optimism in the stock’s prospects. The Zacks Consensus Estimate for the company’s current-year earnings has moved up 24.2%, reflecting nine upward revisions, over the last 30 days. Also, estimates for fiscal 2018 have climbed 23.1% over the same time frame, depicting seven positive revisions.

Solid Q2 Results & Upbeat View

RH’s second-quarter fiscal 2017 EPS improved 47.7% from the prior-year quarter and surpassed the Zacks Consensus Estimate by 38.3%. Revenues increased 13.2%, beating the Zacks Consensus Estimate by 0.4%. Core RH Business, excluding outlet and Waterworks acquisition, increased 10% year over year.

The company’s margins also showed solid improvement. Adjusted operating margin expanded 30 basis points (bps) and adjusted gross margin improved 40 bps in the quarter. RH’s focus on executing its new business model, designing a new operating platform and maximizing cash flow by increasing revenues and earnings bode well.

Given the solid quarterly results, the company raised its fiscal 2017 view. RH now expects adjusted net income in the $70 million to $77 million band (previously $60-$70 million) and adjusted diluted earnings per share of $2.43 to $2.67 (previously $1.67-$1.94).

VGM Score

RH has a VGM Score of A. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our research shows that stocks with VGM Scores of A or B when combined with a Zacks Rank #1 or 2 (Buy) make solid investment choice.

Other Stocks to Consider

Other top-ranked stocks in the Retail-Wholesale sector include Kirkland's, Inc. KIRK, Costco Wholesale Corporation COST and Burlington Stores, Inc. BURL, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kirkland's has a VGM Score of A.

Full-year 2017 earnings for Costco are expected to increase 7.8% while that of Burlington are likely to rise 29.4%.

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