What you can expect from RH (Restoration Hardware)

RH is scheduled to report earnings after the market closes on Thursday. The stock hit a record high of $744.56/share in 2021 and is currently trading at around $247. The stock is susceptible to large price swings after earnings releases and can easily jump higher on strong numbers. Conversely, the stock can easily jump lower on disappointing numbers. To prepare you for the results, here are Wall Street's expectations:

Result preview

The company is expected to report earnings of $1.53/share on revenue of $827.71 million. The so-called whisper number is $1.45/share. The whisper number is Wall Street's unofficial assessment of earnings.

A closer look at the basics

The company's earnings have fluctuated over the past few years. In 2020, the company earned $11.66/share. In 2021, earnings jumped to $17.83. Then, in 2022, earnings exploded to $26.12. In 2023, earnings were $19.90. This year, earnings are expected to be $6.87 and then rise to $7.23 in 2025. In 2026, earnings are expected to rise to $13.05/share.

A closer look at the technical data

Technically, the stock is not performing well. It is in a steep downtrend and is currently trading 30% below its 52-week high. Normally, this is not a big deal, but looking at the major indices trading near their record highs, it tells us that RH has little relative strength. In addition, the stock is trading below its 50-day moving average (DMA) and below its longer-term 200-day moving average, which are not good signs.

Value Corner

Value, like beauty, is in the eye of the beholder. Value investors could argue that the stock is undervalued and has a good chance of rising again from here. The price-to-earnings ratio is high, above 60. However, the forward price-to-earnings ratio is lower, currently above 20. In addition, RH's strong brand positioning in the high-end home furnishings market provides a competitive advantage that is critical to long-term value creation. Recently, the company made a strategic pivot to a membership model that has helped stabilize revenue and improve customer loyalty. RH has been able to generate consistent free cash flow and maintain healthy margins despite economic fluctuations. Recent expansion into the hospitality industry and international markets demonstrates management's vision for long-term growth. Value investors can make a compelling argument that RH is undervalued. They can point to the combination of brand strength, cash flow generation, and growth initiatives as reasons why the stock could rise again from here. Only time will tell.

Company profile

RH, together with its subsidiaries, operates as a retailer in the home furniture market. The company offers products in various categories, including furniture, lighting, textiles, bathroom items, decoration, outdoor and garden furniture, and baby, children and youth furniture.

It offers its products through online channels rh.com, rhbabyandchild.com, rhteen.com, rhmodern.com and waterworks.com and operates RH Galleries, RH Outlet Stores, RH Guesthouse and Waterworks showrooms in the US, Canada, UK and Germany.

The company was formerly known as Restoration Hardware Holdings, Inc. and changed its name to RH in January 2017. RH was founded in 2011 and is headquartered in Corte Madera, California.

Watch how the stock reacts to the news

From my standpoint, the most important thing I pay attention to during earnings season is how the market and a particular company reacts to the news. Remember to always cut your losses and never argue with the tape.

Disclosure: The stock was featured on FindLeadingStocks.com.