There's no investor to whom the market pays more attention than Warren Buffett. The longtime Berkshire Hathaway (BRK.A -0.01%) (BRK.B -0.09%) CEO has an impeccable track record; the company's shares delivered a compound annual growth of 20.1% from 1965 to 2021, nearly double the S&P 500's return.

Investors pay close attention not just to Buffett's comments on the market, but also to the stocks he and his team acquire for Berkshire Hathaway's massive portfolio, as the company has created value through both its subsidiaries and its investments.

It's noteworthy, therefore, that in 2019 Berkshire Hathaway opened a position in RH (RH -7.20%), formerly known as Restoration Hardware, and upped its stake in the retailer in the first quarter of this year. Like many of its peers in the home goods retail sector, RH has fallen sharply in 2022. Its shares are down 53% year to date.

But at least one observer thinks the stock could jump about 50% from its current level. Jefferies analyst Jonathan Matuszewski gives the stock a price target of $375, saying the market isn't valuing it correctly. Let's take a look at why RH is a Berkshire holding and may have a great deal of upside potential right now.

Why it's a Buffett stock

RH has made a name for itself in high-end home furnishings, and consumers know it for things like leather sofas and modern coffee tables. The company's approach to retail is unique as well. It sells its goods from cavernous "galleries" in a few dozen metro areas around the country. The company mails source books to its customers semiannually, employing a traditional marketing tactic that's declined in the digital era.

Unlike most retailers, RH also does business under a membership model. For a $175 annual fee, members get 25% discounts off its full-priced merchandise, 20% off items on sale, and complimentary interior design services. Membership is optional -- people can shop at RH without it -- but the program has helped the company create a loyal customer base of repeat buyers and given it a new revenue stream.

That business model and RH's strong brand give it an economic moat, and help explain why it's both larger and faster-growing than other high-end home furnishing companies. The company has been a longtime outperformer on the stock market. Its shares have jumped by 700% since its IPO a decade ago, and it generates operating margins in the 25% range, a characteristic that Buffett likely admires.

Why the stock could jump 49%

Following RH's second-quarter earnings report, Matuszewski maintained a buy rating on the stock but lowered his price target from $400 to $375, implying a 49% upside from its current price. Matuszewski said that the guidance cut was due to new gallery openings, but viewed that as a transitory issue and sees little downside to the stock at its current valuation.

Of the 10 analysts that have issued price targets on the stock in the last ten months, the consensus price target is $305.67, or an upside of 20%, and they range from $246 to $375.

While RH does face a number of headwinds on the macro level, including the strong dollar, recession fears, and difficult comparisons with its results a year ago, those seem adequately reflected in the stock price. RH now trades at a price-to-earnings ratio of about 10 based on its expected earnings this year.

RH is still opening new stores -- a massive one is coming soon to Palo Alto, California -- and an expansion into the U.K. will begin next year. It has built a robust online business as well. The company is also extending its brand beyond furniture by opening guesthouses and restaurants, renting out chartered jets, and even launching streaming content based around architecture and design. CEO Gary Friedman's vision is to make RH a lifestyle brand beyond just home furnishings.

Despite those ambitious plans, the stock is priced like a sleepy value play whose best days are behind it. This bear market will eventually end, and demand for home furnishings will rebound. When it does, RH is likely to capitalize on the opportunity, especially as a result of trends like remote work, the expanding short-term rental market, and a boom in home prices over the last two years.

Any success the company finds outside of its core home furnishings business would only be an added bonus for investors. And at a P/E of just 10, this Buffett stock looks like a steal right now.