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Should Value Investors Buy Restoration Hardware (RH) Stock?

Zacks Equity Research
Northern Trust (NTRS) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.

Looking at the history of these trends, perhaps none is more beloved than value investing. This strategy simply looks to identify companies that are being undervalued by the broader market. Value investors use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.

In addition to the Zacks Rank, investors looking for stocks with specific traits can utilize our Style Scores system. Of course, value investors will be most interested in the system's "Value" category. Stocks with "A" grades for Value and high Zacks Ranks are among the best value stocks available at any given moment.

One company to watch right now is Restoration Hardware (RH). RH is currently sporting a Zacks Rank of #1 (Strong Buy), as well as a Value grade of A. The stock holds a P/E ratio of 13.67, while its industry has an average P/E of 16.95. RH's Forward P/E has been as high as 31.41 and as low as 11.77, with a median of 16.08, all within the past year.

We also note that RH holds a PEG ratio of 0.78. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. RH's industry has an average PEG of 1.17 right now. Within the past year, RH's PEG has been as high as 1.57 and as low as 0.51, with a median of 0.75.

These figures are just a handful of the metrics value investors tend to look at, but they help show that Restoration Hardware is likely being undervalued right now. Considering this, as well as the strength of its earnings outlook, RH feels like a great value stock at the moment.


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