It's that time of year again. But paying taxes isn't always a drag. Many U.S. taxpayers get a sizable refund from the Internal Revenue Service (IRS), and if you can put that money aside and don't need it for basics or emergencies, you should consider using it to buy stocks. Now is an ideal time to comb through the many great deals on the market as we near correction territory. Three Motley Fool contributors have some great suggestions, and they include RH (RH 5.45%), Live Nation Entertainment (LYV 0.04%), and Netflix (NFLX -1.74%).
Taking your home, and your portfolio, up a notch
Jennifer Saibil (RH): RH is not your typical home goods store. Aside from its web site, the company formerly known as Restoration Hardware operates less than 100 U.S. stores, including several "galleries," or artistically designed showrooms in large, museum-like spaces. The company targets an upscale demographic with luxury housewares including furniture, décor, lighting, and more.
As you might imagine, the company stumbled at the beginning of the pandemic, but it ended 2020 with a 8% year-over-year sales increase, and it's rebounded since. In the 2021 fiscal third quarter (ended Oct. 30), revenue increased 19% to more than $1 billion, and earnings increased nearly 300% to $46 million.
But it hasn't been smooth sailing. Supply chain backups forced RH to delay its launch of RH Contemporary, a new collection, as well as the opening of several new galleries and sourcebook mailings. However, despite the challenges, management slightly raised its full-year outlook in its Q3 earnings release. It expects 32% to 33% year-over-year revenue growth, or $3.77 billion. Average analyst estimates for fiscal 2021 revenue fall at $3.8 billion, and earnings-per-share (EPS) estimates are around $26. RH beat EPS estimates by a large percentage for the past four quarters. RH reports Q4 earnings on March 29.
Management is expecting a big recovery in 2022, calling it the Year of the New. CEO Gary Friedman said, "Let this be remembered as the time RH unleashed the greatest display of innovation our industry has ever seen." Besides the RH Contemporary launch and new U.S. galleries, it will enter the U.K. market at a historic location, and it has also secured locations for galleries in London, Paris, and Germany. It's also sourcing locations in Madrid, Milan, Brussels, and other parts of France. These add a powerful punch to the already robust North American market.
RH stock seems undervalued at the current price, trading at only 18 times trailing-12-month earnings. That's a low premium for a company with RH's prospects. It's an excellent choice if you have money available to invest from your tax refund.
A streaming pioneer poised to remain among the leaders
Parkev Tatevosian (Netflix): The streaming content pioneer thrived at the pandemic onset, gaining millions of subscribers worldwide. The boom times may be slowing for Netflix as economies reopen, but that is no reason to turn sour on this top growth stock. Instead, the painful 41% price decline in Netflix's stock can be viewed as a buying opportunity for long-term investors.
As of Dec. 31, Netflix boasts 222 million streaming subscribers. Despite economies reopening, Netflix managed to grow subscribers 9% year over year. In the near term, sign-up figures may be volatile as consumers adjust to the evolution of the COVID-19 pandemic. Over the more extended period, Netflix has a powerful tailwind at its back: Streaming content is more convenient and less expensive than traditional cable TV. Folks can take a Netflix subscription with them anywhere they can take a connected screen. That fact could funnel millions more subscribers to Netflix over the years.
The rising competition will undoubtedly create friction for Netflix's growth, but it has achieved a level of scale that likely cements it among the leaders. As of its quarter ended Dec. 31, Netflix's revenue is at an annual run rate of $30.8 billion. The massive sum gives it one of the largest content budgets in the industry. Fresh content keeps existing subscribers and attracts new ones in a perpetuating cycle. Furthermore, the scale is expanding operating profits, which grew from $306 million in 2015 to $6.2 billion in 2021.
Of course, investors should not be blind to the near-term challenge facing Netflix. However, its stock has arguably already paid that price -- down 41% in three months. It's now selling at a price-to-earnings (P/E) ratio of 34.8. That's around the lowest at which investors have been able to purchase Netflix in the last five years. If you're considering investing some of your tax refunds, Netflix is an excellent stock to buy.
Concert demand is on the rise again
John Ballard (Live Nation Entertainment): Music fans are returning to concerts in strong numbers, and that's great news for the largest live entertainment company. Through Ticketmaster, online channels, and retail outlets, Live Nation sold 282 million tickets in 2021, with average revenue per fan up double-digit percentages over 2019. It's shaping up to be another strong year of concert attendance in 2022.
The live music industry has steadily grown over the last several years, excluding the blip during 2020. The market is expected to grow at a single-digit rate through 2025 and reach $30 billion in annual revenue, according to Statista.
Live Nation has already sold 45 million tickets for upcoming shows this year. Strong demand for top shows has driven prices up 20% over levels in 2019, and that's good for profitability and free cash flow.
Trailing-12-month free cash flow has increased to a high of $1.6 billion through 2021. The stock trades at a modest price-to-free cash flow ratio of 16, which is about as cheap as investors can expect to buy shares of this live entertainment leader.