Restoration Hardware Holdings Inc (RH): Is This Momentum Stock Presenting Value?

In the case of Restoration Hardware Holdings Inc (NYSE:RH), it is growing at almost 40%; but what’s impressive is that Restoration Hardware is achieving all of its growth without expanding its stores. If Home Depot is 70% more expensive than Lowe’s Companies, Inc. (NYSE:LOW), and has top-line growth of 7.4%, then how much is Restoration Hardware Holdings Inc (NYSE:RH) worth with its growth? My answer is that it is worth significantly more than a 35% premium on The Home Depot, Inc. (NYSE:HD). The reason: It has more room to grow and is capitalizing on current market opportunities.

Next, everyone wants to look at the P/E ratio, and you see that Restoration Hardware is expensive according to its price times earnings. However, in the case of growth companies, the P/E ratio serves little meaning, as companies often spend money to grow. Therefore, top-line growth becomes the most important metric, which clearly shows Restoration Hardware Holdings Inc (NYSE:RH) as a company on the rise. Then, we can look at industry margins, which average 9% for Home Depot and Lowe’s, and assume that Restoration Hardware has a lot of space in front of it to improve margins.

Final Thoughts

When you consider the upside that Restoration Hardware Holdings Inc (NYSE:RH) has in the home improvement space, its value relative to growth, and the room for margin improvement, you can see why I consider it a value stock.

Sure, Restoration Hardware has seen post-IPO gains of 125%, trades at almost 40 times next year’s earnings, and contradicts what you think you know about value, but when compared to its industry, Restoration Hardware Holdings Inc (NYSE:RH) is cheap and has fundamental upside that far exceeds industry growth. These things combine to indicate that Restoration Hardware is in fact a value stock, one that you should explore.

The article Is This Momentum Stock Presenting Value? originally appeared on Fool.com and is written by Brian Nichols.

Brian Nichols is long RH. The Motley Fool recommends The Home Depot, Inc. (NYSE:HD) and Lowe’s Companies, Inc. (NYSE:LOW). Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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