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Berkshire Hathaway Reveals New Stake in Restoration Hardware (RH)—Shares Jump

Posted on Friday, November 15th, 2019 by Steve Anderson

There's a reason Warren Buffett is known as the Wizard of Omaha. He has a near-prescience when it comes to picking stocks. Sure, he's seen his share of failures but understanding the market seems to come more readily to him than the average person. Therefore, his moves—and by extension Berkshire Hathaway's—draw extra attention from market watchers and often drive stock share sales as well. Restoration Hardware (NYSE:RH) recently got the benefit of Berkshire Hathaway's attention recently as Buffett's powerhouse revealed a new stake taken out in the home furnishings operation.

Renovation Hardware Stock May Prove a Market Beater

When Berkshire filed its F13 form with the Securities and Exchange Commission (SEC), it contained a line that caught a lot of market attention. Berkshire currently owns 1.2 million shares of Restoration Hardware, which at the time of filing was worth roughly $210 million. That's enough to make Berkshire the fourth-largest single stakeholder in the company.

This was an announcement sufficient to draw interest from the rest of the market and spark sales sufficient to drive up the price of Restoration Hardware shares up 5.45 percent as of this writing. This is on top of gains already seen that drove the stock price up over 40 percent this year alone.

Good Bones Under Restoration Hardware Stock

While the Berkshire deal likely drew a lot of interest from the market, it's not just Warren Buffett's interest that should draw attention here. Looking at Restoration Hardware's fundamentals suggests that there are “good bones” involved here. When home renovators and design professionals hear the term “good bones”, they know they're looking at a house that is fundamentally sound, and may only need certain cosmetic changes or technology updates to be a truly great home.

Restoration Hardware's numbers should evoke a similar reaction. The stock is trading at a P/E ratio of 28.23, which means investors are expecting growth from the stock, in a big way. Throw in the earnings per share (EPS) numbers of $6.50, and that drives home why the stock is trading at $184.80 as of this writing. That's also remarkably close to its 52-week high of $192. With a market cap of over $3 billion and nearly 18.6 million shares outstanding, there's a reason to get in, and plenty of room to do so.

What's the Neighborhood Like?

The neighborhood is always important for home buyers and design professionals. The “neighborhood” for renovation hardware stock is looking impressive in its own right. Consider the macroeconomic picture and you'll see great potential ahead for Restoration Hardware and those of its ilk.

Right now, the overall economic picture is fairly sound and retail is doing well. While big-ticket items seem a bit sluggish, people are willing and able to shop. Home product sales are doing well as well, and people seem to be putting particular care into their houses' look and offerings. Overall home design is taking on a new importance; maybe some are seeing a recession coming eventually—as it must at some point—and are putting the focus on their home's design to have a comfortable place to wait it out.

Some suggest that Restoration Hardware has drawn particular interest thanks to a shift in its target market; the company recently attempted to rebrand itself as a retail outlet for high-end home design components, a move which has powered it to new heights in the broader market. Throw in the recent opening of 70 “RH Galleries”, which are basically stores with a lot of extra space said to resemble museums more than standard shops, and a membership-driven sales model, and it's a recipe for pursuing the high-end home buyer.

Home Design Products Sales Draw Interest

No matter what the motivation behind it, it's clear that a major figure in investing has taken a liking to Restoration Hardware. There are several possible reasons at work here, starting with solid fundamentals and moving to an overall market that's amenable to more sales for home products. Regardless, it's clear that this entry in the home design stock stakes is getting a serious boost, and causing other investors to look twice.

Companies Mentioned in This Article

CompanyCurrent
Price
Price
Change
Dividend
Yield
P/E
Ratio
Consensus
Rating
Consensus
Price Target
Restoration Hardware (RH)$239.61+2.8%N/A28.06Hold$169.08
Berkshire Hathaway (BRK.A)$332,800.00+0.9%N/A22.08Buy$367,000.00

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