Restoration Hardware (NYSE:RH) stock is in the spotlight after the high-end furniture retailer became the latest company to announce a stock split.
In a news release, the Corte Madera, California-based company announced that it will split its stock on a 3-for-1 basis sometime in the second quarter, although an exact date has not been announced.
RH, as the company is popularly known, follows recent announcements by Amazon (NASDAQ:AMZN) and Google parent company Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) that they will split their stocks later this year. Electric vehicle maker Tesla (NASDAQ:TSLA) is also preparing a vote on a stock split that would be its second in two years.
When Is the RH Stock Split?
In a news release, RH announced a 3-for-1 stock split, saying that “a stock split is appropriate in view of the substantial appreciation that has occurred in the share price since the 2012 initial public offering.”
Since going public a decade ago, RH stock has gained 1,140%. However, the shares have declined 40% in the last 12 months. The stock split was announced as RH issued its latest earnings, which disappointed Wall Street. Consequently, RH stock is down 12% today.
RH said it earned $5.66 per share in the fourth quarter, beating Wall Street forecasts of $5.59. However, its revenue came in at $902 million, missing analyst estimates of $931 million. Looking ahead, RH forecast fiscal 2022 net sales growth of between 5% and 7%. Wall Street had been expecting growth of 10%.
Why It Matters
Stock splits appear to be back in vogue and seen as a way to boost stagnant or declining share prices. For years, many companies such as Amazon and Alphabet refused to split their stocks even as they ran above $2,000 per share and put them out of reach for many retail investors.
But now, several companies are announcing stock splits and seeing their share prices run higher. AMZN stock has risen more than 10% since it announced a 20-for-1 stock split in early March. Similarly, Alphabet announced a 20-for-1 stock split on February 1 of this year, its first in more than a decade.
While stock splits don’t change the fundamentals of a company or its stock, they do lower the price and make the shares more accessible and affordable to individual retail investors, which often prompts a buying frenzy that pushes the price higher.
What’s Next
RH stock is sliding today indicating that investors are not willing to look past the company’s earnings miss and disappointing forward guidance. The announcement of a stock split, while interesting, cannot distract from supply chain issues and pandemic woes.
On the date of publication, Joel Baglole held a long position in GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
