Down 75% in 5 Years, Is RH Stock Finally Positioned for a Turnaround?

The past five years have been a difficult stretch for the stock of luxury furniture company RH (NYSE: RH), which is down more than 75% in that span. The home furnishing industry has been hit with a perfect storm of prior demand pull-forward due to COVID restrictions, low housing turnover, and tariffs.

Despite delivering first-quarter revenue results that topped its prior guidance, RH stock slid as it issued a cautious second-quarter forecast. Let's take a close look at RH's results and prospects to see if a turnaround could be in store.

Making bold moves

Despite facing an incredibly difficult furnishing environment, RH has been putting up respectable results as it expands its brand to Europe through the opening of grandiose galleries.

It's also making one of its boldest brand extensions ever with RH Estates, as it introduces a more traditional furniture line that tends to be preferred by many luxury homeowners. This will include ultra-high-end, fully customizable furniture catering to both wealthy consumers and design professionals, and is expected to help propel growth starting in the second half of the year.

For its fiscal Q1, RH reported a 1.7% decrease in revenue to $800.3 million, which was above its prior guidance for revenue to decline by 2% to 4%. Adjusted earnings per share, meanwhile, had a loss of $1.97, versus a profit of $0.13 a year ago. That was better than the $2.07 loss expected by analysts.

Looking ahead, RH raised its full-year revenue forecast, taking it to growth of between 4.5% and 8%, up slightly from a prior outlook of 4% to 8% growth. For Q2, it projected revenue to grow by between 0.5% to 2.5%, before accelerating to 12% growth in the second half. The second-half growth acceleration is expected to be led by a combination of backlog reduction (4.5%), new store growth (2.5%), and RH Estates (5%).

RH has also been selling some assets, like its Aspen real estate portfolio. Management thinks that the combination of improved sales, reduced spending, and asset sales will lead to significant free cash flow generation and help it become debt-free by 2029.

Image source: Getty Images.

Is it time to buy the stock?

If RH can accelerate sales and reduce debt, the stock could have a lot of upside from here. It's making some big bets with Europe and RH Estates, so it certainly isn't sitting still. The stock only trades at a forward price-to-earnings ratio (P/E) of 16 based on next fiscal year analyst estimates, but its leverage and sales growth have been keeping the stock back.

I think the stock looks like an interesting speculative bet at current levels, with some nice potential over the next few years if its strategy works.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool recommends RH. The Motley Fool has a disclosure policy.