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RH (NYSE:RH): Immense Growth Potential?

Simply Wall St

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In February 2019, RH (NYSE:RH) announced its latest earnings update, which showed that the business benefited from a significant tailwind, more than doubling its earnings from the prior year. Investors may find it useful to understand how market analysts view RH's earnings growth trajectory over the next few years and whether the future looks even brighter than the past. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings.

See our latest analysis for RH

Analysts' expectations for the coming year seems optimistic, with earnings expanding by a robust 39%. This growth seems to continue into the following year with rates reaching double digit 59% compared to today’s earnings, and finally hitting US$268m by 2022.

NYSE:RH Past and Future Earnings, May 29th 2019

Even though it’s helpful to be aware of the growth rate year by year relative to today’s value, it may be more insightful gauging the rate at which the company is rising or falling on average every year. The advantage of this approach is that it ignores near term flucuations and accounts for the overarching direction of RH's earnings trajectory over time, which may be more relevant for long term investors. To compute this rate, I put a line of best fit through the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is 14%. This means, we can anticipate RH will grow its earnings by 14% every year for the next couple of years.

Next Steps:

For RH, I've put together three important factors you should further examine:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is RH worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether RH is currently mispriced by the market.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of RH? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.