The market has been swinging wildly in the aftermath of President Trump's "Liberation Day" tariffs announcement. Investors are struggling to predict the consequences of a such a combative trade policy.
While many stocks have been moving in line with the market's ups and downs, others have remained fairly steady. Then, there are the stocks that have been completely crushed, including former Warren Buffett stock RH (RH +3.56%). Buffett sold his entire position in the company back in Q1 2023, but since that quarter, the luxury home furnishings retailer managed to rise over 80% to trade around $450 per share earlier this year.
Following weeks of steady declines and a 40% one-day loss on April 3, the stock trades below $150 as of this writing.
In need of restoration
RH stock peaked in 2021 during the pandemic, but higher interest rates and a weak housing market have taken their toll on the company. Despite serving an upscale and resilient clientele, slow home sales have affected its business.
CEO Gary Friedman has remained firm in his approach to stay premium and curtail promotional activity, which could water down the company's brand. He sees that as a short-term strategy to boost sales that could weaken margins and otherwise have negative long-term repercussions for the business.
NYSE: RH
Key Data Points
The situation looks like it's turning around, even though the housing market is still in the doldrums. Comparable revenue increased 18% year over year in the fiscal 2024 fourth quarter (ended Feb. 1), and demand, which measures the value of all orders placed by customers that are not yet recognized as revenue, was up 17%. Adjusted earnings per share (EPS) more than doubled to $1.58 last quarter, though that figure still missed the Wall Street consensus of $1.91 by a wide margin.
RH happened to report earnings after the market close on April 2, the same day Trump announced the new tariffs that sent the markets tumbling. The combined news resulted in a brutal sell-off for the stock last week.
Positioned for growth
Despite the recent headwinds, RH is still a growing and profitable venture, and it's setting itself up for greater success. Besides its stores, RH has expanded into hospitality ventures, including guesthouses and restaurants, to become a luxury lifestyle brand.
RH is planning to open seven new design galleries globally in 2025, with five in the U.S., one in Montreal, and one in Paris. It's also planning four other new galleries: two focused on outdoor furniture and two on its "new concept." It has stores planned for 2026 in London and Milan.
Though no one knows when the real estate market will bounce back, the company continues to position itself for a strong recovery. Even in this challenging environment, management expects to report 10% to 13% revenue growth in fiscal 2025, plus higher margins and positive free cash flow.
An opportunity to buy the dip
RH stock trades at a forward, one-year price-to-earnings (P/E) ratio of only 14.5 as of this writing. That's a bargain, but there's a lot of risk for RH right now.
If you have a long time horizon and can look past the recent volatility, this could be an attractive entry point for patient investors, especially since RH stock is down 78% from its all-time high.
