Stock Strategist: Time for RH Investors to Take Profits off the Table

[Morningstar Logo]( [Company Site]( [Company News]( [Membership]( [Portfolio]( [Stocks]( [Options]( [Funds]( [ETFs]( [Markets]( [Tools]( [Personal Finance]( [Discuss]( Stock Strategist Time for RH Investors to Take Profits off the Table We expect the shares will trend lower in the long term, given growth and business opportunities. [tab_bar] by Jaime M. Katz, CFA | 8/29/2018 2:30:00 PM [RH]( [RH]( continues to fine-tune its new store presentation, attempting to remain relevant by catering to evolving consumer demands. With many traditional brick-and-mortar retailers struggling to capture rising ticket and transaction rates given the lack of product differentiation and ease of substitution across many categories, RH has focused on bringing the experience economy into its locations through restaurants, open spaces, and differentiated aesthetics. However, the persistent level of change has led to hiccups in the business’ operating model, and we don’t think the company is immune to more of them as its long-term strategy evolves. Furthermore, we think the support for the core RH business still stems from housing market dynamics and consumer sentiment. Despite the company’s meaningful steps in a financially positive direction, we believe much of 2017’s 181% gain in the stock price stemmed from share repurchases, correcting working capital metrics that had struggled, and a change in real estate and capital structure strategies--improvements that are unlikely to repeat--rather than a materially different level of demand for RH’s furniture. While technical factors could keep shares elevated over the near term, including short interest and low active float, our longer-term prognosis for top-line and operating margin potential for the business leads us to believe the shares are currently overvalued, and we would suggest that current investors take profits off the table. To read more, click [here](. Sponsored Links [Buy a Link Now]( New: ETF Managed Portfolios Center On [MorningstarAdvisor.com]( Tap into the industry's best source of information on ETF strategies for financial advisors. See key performance data, screen for specific strategy attributes, and learn more about this fast-growing area of the investment marketplace. [Click to get started](. Free Issue | Morningstar's Stock Newsletter >> Morningstar StockInvestor is celebrating more than 10 successful years of high-quality stock investing. Its two real-money portfolios have outperformed the S&P 500 since 2001. [Get new ideas for the core of your stock portfolio]( ). Search Most Recent Articles [No One Way to Assess a Fund's Liquidity]( [Can You Accumulate $1 Million Saving $14 per Day?]( [How to Turn Your Money Into Superdollars]( Latest Analyst Reports [Autodesk]( [Premier]( [Deutsche Telekom]( [Pfizer]( [International Business Machines]( ABOUT OUR EMAIL TO UNSUBSCRIBE this email address to the Stock Strategist newsletter, please click "reply" and then click "send." This will unsubscribe only this email address to this specific newsletter. All subscription changes will take effect within one business day. Replies are not read by individuals, so please do not use this for queries about Morningstar.com. If you have questions about Morningstar.com or your membership, send a note to [joe@morningstar.com](mailto:%20joe@morningstar.com). ABOUT OUR PRIVACY POLICY Please [click here]( to learn about Morningstar's privacy policy. (c) Copyright 2018. Morningstar, Inc. 22 West Washington Chicago, Illinois, 60602 All rights reserved.