What happened

Despite a lack of negative company-specific news, shares of RH (NYSE:RH) fell 10.8% on Monday. To the contrary, RH stock drifted lower throughout the day even after analysts at Wedbush initiated coverage on the home decor and furnishings retailer early Monday with an "outperform" rating.

So what

It didn't help that the broader market continued to pull back to start the week. And investors should keep in mind that RH shares were up 45% in the year leading up to yesterday's decline -- though they were also still reeling from the company's post-earnings drop in September after RH delivered mixed quarterly results, falling short on revenue but outperforming on earnings relative to expectations.

Contemporary room decorated with Restoration Hardware furniture and decor


At the time, RH Chairman and CEO Gary Friedman insisted the the company was avoiding "chasing low quality sales at the expense of profitability." He further teased that the "earnings power of [RH's] new model is proving to be greater than previously anticipated, and will be further amplified when we pivot back to growth in fiscal 2019."

Now what

Even so, nearly 39% of RH's total shares outstanding were sold short as of Monday's close,  indicating plenty of skepticism for Friedman's prediction and leaving the stock susceptible to more than its fair share of volatility. With RH's next quarterly report slated for early December, and until it can show more sustained evidence of its outsized earnings power, I suspect the stock will continue to be volatile.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.