U.S. Markets closed

Restoration Hardware (RH) Soars to 52-Week High, Time to Cash Out?

Zacks Equity Research

Shares of RH (RH) have been strong performers lately, with the stock up 33% over the past month. The stock hit a new 52-week high of $233.33 in the previous session. RH has gained 94.6% since the start of the year compared to the 21.8% move for the Zacks Retail-Wholesale sector and the 37.3% return for the Zacks Retail - Home Furnishings industry.

What's Driving the Outperformance?

The stock has an impressive record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on December 4, 2019, Restoration Hardware reported EPS of $2.79 versus consensus estimate of $2.22 while it beat the consensus revenue estimate by 0.17%.

For the current fiscal year, Restoration Hardware is expected to post earnings of $11.11 per share on $2.69 billion in revenues. This represents a 30.09% change in EPS on a 7.17% change in revenues. For the next fiscal year, the company is expected to earn $12.61 per share on $2.9 billion in revenues. This represents a year-over-year change of 13.51% and 7.87%, respectively.

Valuation Metrics

Restoration Hardware may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company is due for a pullback from this level.

On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.

Restoration Hardware has a Value Score of B. The stock's Growth and Momentum Scores are C and A, respectively, giving the company a VGM Score of B.

In terms of its value breakdown, the stock currently trades at 21X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 13.3X versus its peer group's average of 7.5X. Additionally, the stock has a PEG ratio of 1.19. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to consider the stock's Zacks Rank, as this supersedes any trend on the style score front. Fortunately, Restoration Hardware currently has a Zacks Rank of #1 (Strong Buy) thanks to rising earnings estimates.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Restoration Hardware meets the list of requirements. Thus, it seems as though Restoration Hardware shares could have potential in the weeks and months to come.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
RH (RH) : Free Stock Analysis Report
To read this article on Zacks.com click here.