RH (NYSE:RH), also known as Restoration Hardware, is an upscale/high-end furniture company. Backed by none other than Warren Buffett, RH stock is a value investor’s dream, even if not all Wall Street experts are ultra-bullish on the stock.
In a time of high inflation, investing in a high-end furniture business might seem counterintuitive. Some folks are worried about a possible recession in 2022, so it’s not easy to construct a bullish argument for Restoration Hardware.
On the other hand, Buffett doesn’t favor a stock unless it has merit. Could it be that low expectations are just a setup for Restoration Hardware’s imminent comeback? Just maybe, it’s time to think about furnishing your portfolio with a few Restoration Hardware shares while the price is down.
What’s Happening With RH Stock?
It’s amazing to consider now that RH stock traded at $744.56 at one point during the past 12 months. More recently, the shares were priced near the $270 area.
Buffett isn’t known to shy away from a good bargain. Likewise, you don’t have to panic just because Restoration Hardware shares have declined. After all, value investors are supposed to lean into negative sentiment, not avoid it.
Notably, Restoration Hardware has a trailing 12-month price-to-earnings ratio of 9.29x. That’s an old-school valuation metric, but it’s often a reliable measure of how reasonably priced a stock is. In the case of RH stock, having a price-to-earnings ratio below 10x suggests that the shares are bargain-priced.
Meanwhile, Restoration Hardware’s board of directors approved $2 billion worth of share repurchases not long ago. That’s in addition to the company’s already existing share buyback program, which reportedly has $450 million remaining.
Setting the Bar Low
So far, we’ve considered Restoration Hardware’s sizable share repurchase program, which is a sign of the company’s self-confidence. We’ve also observed that a reduced share price has put RH stock in the buy zone according to a tried-and-true valuation metric. Already, Restoration Hardware looks like a high-potential Buffett bet.
Now, let’s see what a couple of prominent Wall Street experts have to say about Restoration Hardware. Reportedly, an analyst with Telsey Advisory Group maintained an “outperform” rating, but also lowered their price target from $510 to $400. Similarly, a BofA analyst reiterated a “buy” rating on Restoration Hardware but slashed their price objective from $650 to $550.
Price target cuts might be off-putting, but there’s no need to worry. Since RH stock has fallen into the $200s, analysts can’t realistically maintain price objectives in the $500s or $600s. Besides, both of the aforementioned analysts issued positive ratings on Restoration Hardware along with price targets that suggest significant upside from the current share price.
Speaking of targets, Restoration Hardware’s revenue objectives for this year seem to be downbeat, and therefore easily achievable. Specifically, Restoration Hardware is modeling second-quarter 2022 revenue deceleration in the range of -1% to -3%. This implies a major disappointment compared to the year-ago quarter’s 39% revenue growth.
For full-year fiscal 2022, Restoration Hardware expects net revenue growth in the range of 0% to 2%. That’s a low bar to clear, as the company reported 32% revenue growth in the prior fiscal year.
What You Can Do Now
When expectations are muted, value-conscious investors can take a long position in anticipation of a positive surprise. Sure, it’s not always easy to buy a stock when sentiment is negative, but that’s an essential part of Buffett’s highly successful approach to investing.
With all of that in mind, RH stock looks quite attractive at its current share price. Don’t be too amazed if Restoration Hardware pulls out a revenue “meet and beat” this year, shocking bearish analysts and delighting early investors.
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.