Restoration Hardware Holdings Inc (NYSE:RH), the home furnishing retailer, rallied on the back of its late March earnings report but has given up those gains since. However, RH stock remains very constructively positioned through multiple time frames, and Restoration Hardware itself is a solid growth story.
So, for RH, active investors and traders can apply trend-following as the strategy of choice.
On March 26, Restoration Hardware released better-than-expected earnings for its fourth quarter. Specifically, RH earnings came to $1.02 per share, beating analyst expectations by a penny. Revenues came to $582.7 million, a touch below analyst estimates but nearly 25% better year-over-year.
Analysts are generally upbeat about the prospects for RH stock, and Goldman Sachs upgraded the stock to a “buy” with a price target of $114 after the earnings report.
From a tactical perspective, it is my base case that the strong surge in the U.S. dollar since last summer has increased the purchasing power of the American consumer by way of its deflationary forces, which in turn should be positive for consumer discretionary stocks, and retailers like Restoration Hardware in particular.
RH Stock Charts
Looking at RH stock through a technical lens, we see that the uptrend since the company’s initial public offering in late 2012 remains intact, and that the rise has largely taken place in an orderly stair step way.
Since last summer, Restoration Hardware shares have seen three rallies that broke the stock past well-defined lines of resistance, the latest one having taken place after the March earnings report. In the bigger picture, RH stock remains on firm footing.
From a trend-following perspective, this stock is better bought on dips than sold on rips.
Zooming in on the chart of RH stock, we see that since the 200-day simple moving average (red line) has become available (remember: RH has only been a publicly traded stock since late 2012), shares have bounced off this moving average twice.
The rally following the March earnings report measured about 10%, but quickly stalled at its December 2014 highs. Traders that chased this stock higher in the near term likely got burnt, which is why I’ll reiterate that a trend-following stock that exhibits a steady and orderly climb higher such as Restoration Hardware is better bought on pullbacks.
Until RH stock breaks below its 200-day simple moving average, the path of least resistance remains higher.
The pullback in Restoration Hardware in recent days has brought it roughly back to where it was before the March earnings report, offering a good risk/reward entry point to buy the stock for a move toward $105 in the coming weeks.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
