RH Stock Nears Buy Point As Warren Buffett Grows Stake
4 min read
IBD Stock Analysis
- RH stock has been trading tightly and remains near a 524.11 entry.
- Shares are largely staying above the 50-day line.
- The relative strength line has been flat but still near highs.
Industry Group Ranking
Emerging Pattern
Flat Base
* Not real-time data. All data shown was captured at
12:49PM EST on
02/26/2021.
Luxury home furnishings retailer RH (RH) is the IBD Stock Of The Day, as elevated spending on homes continues while Warren Buffett’s Berkshire Hathaway (BRKB) recently added to its stake. RH stock is near a buy point.
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Formerly known as Restoration Hardware, RH sells upscale home furnishings through retail galleries in the U.S. and Canada, source books and online.
While the pandemic forced many retailers to close some stores and pare back planned openings, RH is forging ahead in more markets.
In July it opened a 60,000-square-foot location in Marin, Calif. The location included a rooftop restaurant. RH plans to open four new design galleries in North America in 2021 and is preparing a big push into Europe.
Meanwhile, RH plans to expand its brand beyond the $200 billion home furnishings and furniture market. It eyes the hotel business with new RH Guesthouses and the $1.7 trillion housing market with RH Residences.
RH Stock
Shares pared gains but still closed up 3.65% at490.37 on the stock market today. MarketSmith chart analysis shows RH stock is forming a flat base with a 524.11 buy point. Shares are holding support around the 50-day line or better.
RH’s relative strength line has been relatively flat but still near highs achieved earlier this year. The RS line tracks a stock’s performance vs. the S&P 500 index. Its improving earnings lately earned it an EPS Rating of 98, of a best-possible 99. And the Composite Rating is at 93.
RH stock got another endorsement last week when Berkshire Hathaway’s Q4 13-F filing showed that the conglomerate added 1% to its stake.
Rival Williams Sonoma (WSM) is also looking fairly strong lately. Shares rose 2.4% Friday and are finding support above their 50-day line.
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RH Earnings, Outlook
RH stock soared in the months after the pandemic prompted stay-at-home orders, as affluent homeowners spent heavily on revamping home offices and study spaces. Spending on the home is showing no sign of a slowdown yet. Furniture and home furnishing sales totaled $11.35 billion in January, according to the Commerce Department. That’s up 12% from December 2020 and 11.7% from January 2020.
Q3 earnings more than doubled to $6.20 a share as revenue jumped 25% to $844.8 million. Analysts see Q4 EPS of $4.79, a 29% increase from the year-ago quarter, on sales of $795.4 million, 20% more than the prior year, according Zacks Investment Research.
That’s not to say the pandemic hasn’t thrown a monkey wrench into RH’s operations.
“Due to higher than anticipated demand and disruptions across our global supply chain as a result of the virus, total company revenue growth lagged demand by approximately 8 points in the third quarter,” CEO Gary Friedman said in a letter to investors after the release of Q3 results in December.
Friedman added that the gap between demand and revenue growth would persist into Q4, though to a lesser extent. He expects product supply to catch up to demand in the second half of 2021.
As Covid infection rates decline and more people get vaccinated, industry watchers say consumers may shift spending away from the home and into travel and entertainment in the coming months. The recent spike in Treasury yields is also lifting mortgage rates, cooling the hot housing market.
Still, CEO Friedman says he doesn’t expect sales to suddenly fall off a cliff.
“It’s safe to assume that some level of elevated spending on the home will remain through 2021, and possibly beyond,” he said in December. “The booming real estate activity in second home markets, an accelerated shift of families moving to larger suburban homes, the uptick in homebuilding, and a record equity market should drive increased spending for an extended period of time as the cycle for purchasing and furnishing a home is anything but quick.”
Please follow Adelia Cellini Linecker on Twitter @IBD_Adelia.
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