Restoration Hardware Holdings Inc (RH): A Stock to Fly for Many Years to Come!

Restoration Hardware is guiding for revenue growth of 25% in 2013 and comparable store growth of 30%. Both Ethan Allen and Lowes are expecting full-year losses in both revenue and comps, while Home Depot expects revenue growth of 2.8% and comps growth of 4%. Therefore, Restoration Hardware Holdings Inc (NYSE:RH) is on a whole different level, and it “should” be valued as such.

Typically, if you compare two or more companies, the ones with faster growth will trade at a higher premium to fundamentals. In the case of Restoration Hardware this is true, but not to a large degree. In my opinion, the market is still discounting Restoration Hardware, possibly because its operating margins are still low.

The market often rewards high operating margins – as seen when comparing Home Depot to Lowes – but Restoration Hardware is in a growth phase. Currently, Restoration Hardware is focusing its attention on growth, not margins. Yet, as an investor, I view Home Depot, Ethan Allen, and Lowes’ margins as highly encouraging. It shows me the level of upside or improvements that are possible for Restoration Hardware.

Room To Improve

In my opinion, Restoration Hardware Holdings Inc (NYSE:RH) is a stock that will fly for many years to come. The company is producing industry-leading growth without new stores, and does not trade at a lofty valuation compared to its peers. With the company exploring new markets for expansion, investors should be optimistic that growth can continue for many years.

Then, when the company’s growth slows, it can focus on margins with at least five times the upside from current operating margin. With that said, I still think Restoration Hardware is presenting a grand opportunity, even at $70.

The article A Stock to Fly for Many Years to Come! originally appeared on and is written by Brian Nichols.

Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends Home Depot and Lowe’s (NYSE:LOW). Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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