RH (NYSE: RH) is a luxury furniture brand with galleries located primarily in the United States.
The company’s offerings include furniture, lighting, home and garden, and much more. Unlike a traditional retailer, RH uses a catalog model, in which items are viewed in galleries and then ordered from sourcebooks or online for direct home delivery.
The stock is down 38% from its 52-week high as macroeconomic fears take hold in the market. Can this luxury brand stock retrace its previous highs in 2022?
I am bullish on RH stock.
Q3 Results Were Spectacular
Results for a company like RH boil down to growth and profitability. In Q3 2021, the company performed very well in both areas.
First, revenues increased over the same period in 2020 by 19% and exceeded the $1-billion mark for the quarter. This is RH’s first billion-dollar top-line revenue quarter and shows just how far this company has come over the last several years.
Next, margins continued to be impressive and improving. Gross margin came in at over 52%, compared to 48.4% in the prior year. The operating margin was also terrific at 27.1% on a GAAP basis.
This is up from just 13.2% in Q3 2020. Because of the increased margins, net income was up nearly 300%, from $46 million in Q3 2020 to $184 million in Q3 2021. Over the trailing 12 months (TTMs), RH has made over $671 million in net income.
This performance shows that RH’s products are in high demand and that the company is executing well despite difficult macroeconomic conditions.
RH believes it has a total global market of $25 billion annually that can be tapped in the coming years, and it is only scratching the surface. In addition, management has a track record of success.
After the recent steep dip in the share price, RH trades at a very modest forward price-to-earnings ratio of 24.7. The stock is likely being discounted because of temporary macroeconomic headwinds.
COVID-19 has dramatically affected the global supply chain. This is difficult for RH, which sources many products and materials overseas.
Looking to 2022
Along with raising the outlook for the full Fiscal Year 2021, RH gave a glimpse of what is coming in 2022 during the Q3 earnings call.
The company is planning its “most meaningful” sourcebook launch in history sometime in 2022. This line, dubbed RH Contemporary, presents a massive opportunity.
The offering will come with a dedicated website, a 500-page catalog, and a nationwide advertising initiative. This should help the company continue to drive strong sales.
RH will also be expanding internationally, beginning with RH England and then expanding to other European locations. This is the start of the execution of the company’s global strategy. The company has secured locations in several countries, including France and Germany.
Wall Street’s Take
Turning to Wall Street, analysts are extremely bullish on RH stock, with a Strong Buy consensus rating based on seven Buys and no Holds or Sells. The unanimous Buy ratings show that analysts are confident in management’s ability to navigate the company successfully through the short-term headwinds.
The average RH price target of $764.14 implies 67% upside potential.
Too Cheap to Ignore
RH stock has fallen precipitously from its highs. However, the company’s results do not warrant the drop.
Revenue and margins are up across the board, and full-year guidance was raised again in Q3.
Many exciting things are coming in the new year. Analysts are unanimously bullish on the stock, and for good reason.
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