Thursday, August 14, 2014

Home Furnishing Stock Ready to Bounce Higher - Restoration Hardware (RH)

Restoration Hardware (RH) gapped up and broke out of a cup and handle base on a strong earnings report, June 12th, in volume that was over 600% greater then average. The company beat analyst earning's expectations by 63% and raised guidance. That was the third time in the last four quarters the company managed to beat expectations by at least 14%. The company has grown sales and earnings over the last three years by 27 and 102% respectively, and is expected to grow sales and earnings by 23 and 207%, respectively, over the next three years.  Margins are razor thin, but have improved slightly over the last few quarters, and return on equity is around 14%, which is normal for a high growth retailer.

The stock has spent the last seven weeks digesting the earnings gap up by pulling back to the fifty day moving average in below average volume. A good sign institution aren't exiting the stock. The stock can be entered between the fifty day moving average and the recent high of around $86. Based on current valuations and an expectation for further earnings surprises, the stock could trade above $100 before the end of the year, as long as the market cooperates. Protective stops should be placed around $80.

Full Disclosure: No Position...Yet

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