California-headquartered Restoration Hardware (NYSE:RH) and RH stock have struggled so far this year. However, value-seeking investors should view this as a chance to take a long position in the high-end furniture manufacturer and seller.
So, why should you consider investing in Restoration Hardware now? For one thing, legendary stock picker Warren Buffett is known to be an investor in the company. He’s a value investing icon, and Buffett only buys shares of high-quality businesses.
On the other hand, though, you shouldn’t buy RH stock just because Buffett took a stake. You should also apply your own metrics. One commonly used valuation measurement is the trailing 12-month price-earnings (P/E) ratio. In the case of Restoration Hardware, the P/E ratio is 15.19, which is quite reasonable.
But what about the share price? Lately, it’s been hovering in the $330 range, but it’s been as high as $744.56 during the past 12 months. So, there’s plenty of room for upside here — maybe even enough for a 2x move.
Besides, Restoration Hardware appears to be doing well financially. During the three months ended Jan. 29, 2022 — the company’s most recently reported quarter — Restoration Hardware reported $902.7 million in net revenue and $147.05 million in net income (unaudited), a decent improvement year-over-year from $812.44 million in net revenue and $130.2 million in net income.
Furthermore, the company observed that it “once again exceeded our adjusted operating margin outlook” during the company’s fourth fiscal quarter, “reaching 25.2% versus 23.7% last year, and up 780 basis points on a two-year basis.”
Those are the kinds of stats that might make Buffett and other value-focused investors happy. On top of all that, not long ago, Restoration Hardware disclosed its intention to execute a three-for-one common-stock-share split. In a time of stock-split mania, this should get more investors interested in RH stock.
Therefore, now that you have the scoop on Restoration Hardware, you don’t have to be deterred by the stock’s sharp correction. Instead, you can choose to start a position now in anticipation of a possible move higher.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
