Restoration Hardware Holdings Inc (RH), Lumber Liquidators Holdings Inc (LL): Is This Home Improvement Stock Presenting a Great Post-Earning’s Opportunity?

In many ways, it reminds me of Harley-Davidson, Inc. (NYSE:HOG) back in October 2011. The company had reported earnings , and blew away top and bottom-line estimates with worldwide sales growth of 5.1% over the previous year. Yet, the stock fell 9%. In the process, analysts desperately sought a reason for the madness; they found one in gross margin guidance.

In that particular Q3 report, analysts had expected gross margin guidance of 34.5%, but Harley-Davidson, Inc. (NYSE:HOG) estimated its gross margin at 34%. Thus, analysts blamed that 0.5% difference for a 9% stock loss. Clearly, it didn’t make sense, and Harley’s stock has went on to post gains over 60% since that October quarter, about double the S&P.

In my opinion, this is a good example of seeing a good quarter, acting on the fundamentals, and then being rewarded despite the market’s initial insanity.

Final thoughts

In the case of Restoration Hardware, a similar outcome is likely. Right now, the immediate stock reaction is being blamed on a net loss of $0.46 a share, as analysts expected a profit of $0.43 a share. However, that loss only occurred because of a one-time charge related to stock-based compensation and costs associated with a follow-on offering.

The adjusted EPS was $0.49, beating estimates, as net income growth of 62% outpaced revenue growth, indicating a rise in operating margins. Thus, those excuses will likely die down, and based on fundamentals, we will likely see a Harley Davidson-like effect – that is if the stock actually stays lower.

The article Is This Home Improvement Stock Presenting a Great Post-Earning’s Opportunity? originally appeared on Fool.com and is written by Brian Nichols.

Brian Nichols is long RH. The Motley Fool recommends Lumber Liquidators. The Motley Fool owns shares of Lumber Liquidators.

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