Why This California-Based Company's Stock Could Reward Patient Investors

RH (NYSE: RH), the home furnishing company formerly known as Restoration Hardware, hasn't pleased many investors in recent years.

While its sales and stock boomed during the first few years of the pandemic, the time since has been rough for the high-end consumer discretionary stock. A weak housing market put pressure on furniture sales, as home purchases typically trigger buyers to shop for home furnishings. Additionally, inflation has weighed on consumer discretionary spending. And now, President Donald Trump's tariffs are creating another set of challenges for the company.

As a result, RH stock is now down 76% from its peak in 2021, and the stock has slumped in 2025 as new tariffs on the goods it imports took hold. Indeed, it's down by about 57% year to date. Meanwhile, the U.S. labor market is slumping, which is likely to put even more pressure on consumer spending.

However, RH stock could pay off for patient investors who buy it now. Let's take a look at a few reasons why.

Image source: RH.

RH is still growing

Despite the broader headwinds in the home furnishings sector and weakness among some of its peers, RH's recent results have actually been solid.

In its fiscal second quarter, which ended Aug. 2, revenue rose 8.4% to $899.2 million, and demand (a proxy for orders) was up 13.7%. The company also saw strong improvement in its profit margins. Its adjusted operating margin and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) both rose by 340 basis points to 15.1% and 20.6%, respectively.

That RH has been able to deliver growth and improving profitability in spite of the macroeconomic headwinds shows that its efforts to refresh its selection, expand its sourcebooks, and open new galleries in Europe are paying off.

Adjusting to Trump's new import taxes

CEO Gary Friedman has been quick to respond to tariffs, and the company may have an advantage over some of its competitors as it makes some of its furniture in North Carolina. It now projects that 52% of its upholstered furniture will come from the U.S. by the end of the year.

RH has also succeeded in moving nearly all of its production out of China. Management said that sourcing from China was set to decline from 16% in the first quarter to just 2% in the fourth quarter. China isn't the only country facing steep new tariffs, but it has been a major target of Trump's trade war. RH is also adjusting to looking to move production out of India, which accounts for 7% of its business, and is facing 50% tariffs.

The trade picture could continue to change, but management is clearly ready to adapt.

The stock has been underestimated before

In 2016, RH's stock price collapsed after the company pivoted to a membership model. Instead of offering the promotional discounts that its customers were accustomed to, the company began asking them to pay annual membership fees to join a loyalty program that would give them discounts on their purchases. At first, the shift stalled the company's growth, and Wall Street balked. The stock fell by as much as 75%.

However, by 2017, the membership model was paying off, and the stock hit a new all-time high by the end of that year.

This time around, the challenges are macroeconomic, but investors should remember that RH has been underestimated in the past, and then risen to the occasion.

There's still a lot of space for growth

RH has begun expanding in Europe, and its entry into the market has gone well. In RH England's second year, gallery demand was up 76% in the second quarter, and the gallery is expected to reach nearly $50 million in demand this year.

The company is opening new stores in major European markets such as Paris, where the location it opened in September is now busier than RH New York.

In addition, RH is dabbling in new businesses. It has opened a handful of restaurants and guesthouses, is leasing a charter jet and a yacht, and is buying homes and fully furnishing them for turnkey sales, a business that it calls RH Residences.

Overall, RH stock may continue to struggle due to pressure from tariffs, the slow housing market, and weaker consumer spending, but the company has the pieces in place to deliver impressive results when the macro environment improves.

Shareholders will have to be patient, but RH should eventually get there.

Jeremy Bowman has positions in RH. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.