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Why RH Stock Was Up 15% in August

By Jon Quast – Sep 2, 2020 at 9:00AM

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Investors believe affluent city folk are moving to the suburbs, and RH is positioned to furnish their new homes.

What happened

Shares of luxury-furniture company RH (RH -0.70%) were up 15% in August, according to data provided by S&P Global Market Intelligence. There's no single event that sparked the stock's rise. But a combination of external factors likely contributed to RH's market-beating monthly returns.

So what

First, the things hurting RH appear to be getting better. Its new gallery, RH Marin, is a good example of this. The 60,000 square foot building opened on July 10, but only some parts. The restaurant portion of the building is still closed, due to local restrictions on dine-in restaurants. But during the worst of the coronavirus shutdown, all of RH was closed. So even being partly open is an improvement.

A row of sequentially taller stacked wooden blocks are each topped with an upward arrow.

Image source: Getty Images.

As coronavirus regulations and guidelines loosen, RH is able to crawl closer to normal business operations. That trend continued in August. 

However, it seems investors are increasingly buying into the "suburbanization" trend, of which RH would benefit. This thesis gained prominence when Citron Research proposed it in May. In short, the theory is, because of COVID-19, white-collar workers will increasingly leave large cities to live in the suburbs. And who better to furnish these new posh estates than RH?

The suburbanization trend theory gained steam in August. Consider a report from real estate technology platform Redfin. In the four weeks ending Aug. 2, prices for suburban real estate went up 9%. This strongly suggests demand for the suburbs is indeed growing. 

Now what

"This is a time to be defined by our vision, not by a virus," said RH CEO Gary Friedman in his first-quarter letter to shareholders. And there's a lot to like about RH's long-term vision. For now investors will have to sit tight and keep waiting for retail and hospitality spaces to fully reopen so RH's business can thrive. 

Investors will have a better idea how things are going when RH reports earnings next. The date hasn't been announced yet but could come later this month.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Redfin. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.

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