Some of the natural beneficiaries of the housing market recovery are companies that produce home furnishings, as people buying homes will usually put money into redecorating. One company in particular, Restoration Hardware (NYSE:RH), has been consistently delivering very impressive revenue growth in recent years. However, the stock is trading at a steep premium to competitors such as Pier 1 Imports (NYSE:PIR) and Williams-Sonoma (NYSE:WSM). Is it worth the price?
Restoration Hardware, which mainly targets wealthier households, has clearly managed to cash in on the uneven economic recovery, which has benefited home-owners and shareholders. According to the company's CEO, it mainly sells to households earning $200,000 or more.
Since its IPO in 2012, the company has been delivering some very serious revenue growth. Restoration's most recent earnings report again showed solid top and bottom line growth. Third-quarter revenue soared 39% compared to an already impressive 22% increase for the same period last year. Same-store-sales increased a massive 29%.
As for net income, the figures are even more astounding. Adjusted net income increased by a mind-blowing 389% to $13 million, with adjusted earnings-per-share rocketing 357% to $0.32. Things are some big numbers, but to be fair, the company wasn't earning much money last year.
Following this strong beat, it raised its fourth quarter and full-year outlook of revenue to around $490 million to $500 million and around $1.57 billion respectively. So, why did the stock tank over 12% following the report? The main issue was the announcement of the departure of co-CEO Carlos Alberini, which clearly did not please investors. Based on these insane growth figures, gung-ho investors may want to consider buying the dip.
A similar-sized competitor in the home furnishing space, looking at market cap, is Pier 1 Imports. The company operates as an importer and retailer of things like furniture and lamps. Its latest earnings report came as a disappointment to management as well as investors, missing analyst expectations. Second quarter EPS came in at $0.17, badly missing the $0.21 consensus estimate. Growth in general didn't look good compared to Restoration, as comp-store sales missed expectations coming in at 3.5% on a 7.6% overall sales increase.
Competitor Williams-Sonoma did quite a bit better. Its third-quarter EPS of $0.58 beat expectations handsomely, and rose 18.4% year over year. Revenue increased 11.3% to $1.058 billion on a comparable brand revenue increase of 8.2%. Margins increased as well, operating margin hitting 8.8% up from 8.4%. Following these strong numbers, the company has raised its fiscal 2013 earnings and revenue guidance.
Restoration Hardware is clearly growing faster than the competition, but it's also a lot more expensive. The stock trades at around 30 times forward earnings, versus Pier 1's 13.91 and Williams-Sonoma's 18.19. On the other hand, it has a solid financial position, and is outpacing the industry on every growth metric.
The bottom line
Restoration Hardware is easily outpacing the competition in terms of growth, with triple digit growth metrics across the board. This is some impressive stuff. However, it is also a lot more expensive than the competition, and uncertainty surrounding the departure of one of the CEO's could spook the market in days to come. A speculative play, cautious investors might be best off looking elsewhere. However, those looking to take on a little more risk should consider the company for its growth prospects.
Daniel James has no position in any stocks mentioned. The Motley Fool recommends Williams-Sonoma. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.