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Undoubtedly, big-ticket durable consumer items such as the high-end furnishings sold by RH tend to experience explosive demand in the early innings of a market cycle. (See RH stock charts on TipRanks)
While some pundits may think a transition to midcycle will bring forth more modest earnings, I still remain bullish on RH because of the firm’s incredible brand power, and excellent stewardship, both of which enhance the company’s ability to take share in the higher-end corner of the home furnishings space.
RH Capable of Taking Share
While few discretionary firms are immune from the effects of a slowing economy, RH does possess some unique levers it can pull to offset any potential industry sluggishness going into 2022.
RH isn’t as large as you’d think, with a market cap just shy of $15 billion. Given its brand affinity and global growth potential, RH has room to run. With a brilliant CEO, Gary Friedman, at the helm, odds are on RH shareholders’ side, even at these seemingly frothy heights.
The company has the means to expand beyond the confines of the U.S. and Canada. If the brand hits with international consumers, RH could generate some incredibly high bottom-line growth numbers, potentially for many years to come.
Simply put, RH is still in the early stages of what could be a very prosperous growth story. Although there will be the occasional setback, it will be tough to stop the high-momentum stock in its tracks. It has way too much going for it, even if the economy is poised to cool.
Wall Street’s Take
According to TipRanks’ consensus analyst rating, RH stock comes in as a Strong Buy. Out of 13 analyst ratings, there are 10 Buys, and three Holds.
The average RH price target is $793.92. Analyst price targets range from a low of $700 per share, to a high of $897 per share.
Bottom Line
RH stock isn’t cheap at over 39 times trailing earnings and around 4.5 times sales.
Still, given the growth runway and talented management, the premium price tag may be more than worthwhile.
Few firms are as well-positioned to enjoy such high-margin growth over the long run.
Disclosure: Joey Frenette doesn’t own shares of any mentioned companies at the time of publication.
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