With a daily loss of -14% and a 3-month decline of -22.17%, RH (RH, Financial) has caught the attention of investors and analysts alike. The company's Earnings Per Share (EPS) stands at 13.11, raising the question: Is RH significantly undervalued? This article delves into a valuation analysis to determine the true worth of RH (RH) shares, inviting readers to explore the financial intricacies that may impact their investment decisions.
Company Introduction
RH (RH, Financial) is a luxury retailer well-positioned within the $143 billion domestic furniture and home furnishing industry. Offering an extensive range of products from furniture to lighting and decor, RH has expanded its brand to include RH Teen, RH Modern, and Waterworks. With a unique integration across store, web, and catalog channels, RH is set to broaden its market reach with the World of RH digital platform and future ventures. Despite the current share price of $242.01, RH's intrinsic value, according to the GF Value, is estimated at $405.24, suggesting a significant undervaluation.
Summarize GF Value
The GF Value is a unique measure that estimates the fair value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance predictions. When a stock's price hovers above the GF Value Line, it may be overvalued, potentially leading to poor future returns. Conversely, a price below the GF Value Line suggests undervaluation and the possibility of higher future returns. With a market cap of $3.80 billion, RH's stock price of $242.01 signifies a substantial undervaluation, indicating that the long-term return of its stock could significantly surpass its business growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with questionable financial strength can lead to a permanent loss of capital. A company's financial robustness can be gauged by examining metrics like the cash-to-debt ratio and interest coverage. RH's cash-to-debt ratio stands at 0.11, ranking lower than 79.55% of peers in the Retail - Cyclical industry. With a financial strength score of 4 out of 10, RH's financial health warrants caution from investors.
Profitability and Growth
Consistent profitability is a hallmark of a less risky investment. RH has been profitable for 9 out of the past 10 years, with a revenue of $3.20 billion and an Earnings Per Share (EPS) of $13.11 over the past twelve months. The company's operating margin of 16.76% is commendable, outperforming 91.06% of its industry counterparts. With a profitability rank of 8 out of 10, RH's financial performance is robust.
Growth is a vital component of a company's valuation. RH's 3-year average annual revenue growth of 7.5% and EBITDA growth rate of 11.9% are competitive within the Retail - Cyclical industry, signaling a promising outlook for the company's expansion and shareholder value.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) provides insight into its value creation capabilities. RH's ROIC of 12.98 surpasses its WACC of 11.15, indicating effective management and potential for shareholder wealth growth.
Conclusion
In summary, RH (RH, Financial) appears to be significantly undervalued, presenting an intriguing opportunity for investors. Despite its financial challenges, the company's profitability is strong, and its growth trajectory is favorable when compared to industry peers. For a deeper understanding of RH's financial journey, investors can review the 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, please check out the GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
