Restoration Hardware Holdings Inc (RH), Pier 1 Imports, Inc. (PIR): Plenty of Growth Drivers for This Housing Play

Another good indicator for Restoration Hardware Holdings Inc (NYSE:RH) is Williams-Sonoma, Inc. (NYSE:WSM). It has seen good growth in its pottery barn kids and teens categories, and in addition to expanding its e-commerce and direct to consumer sales channels (now 46% of total sales), it has an ongoing international expansion plan. However it also needs to keep a focus on achieving product differentiation because online specialists like Amazon.com, Inc. (NASDAQ:AMZN) are entering the space. Just like Pier 1 Imports, Inc. (NYSE:PIR), the company is targeting mid to high single digit revenue growth. Impressive stuff.

And finally, I think Bed Bath & Beyond Inc. (NASDAQ:BBBY) is worth a mention. I think it has been the business most challenged by online competition and is finding it difficult to hold onto margins. With that said, it too is shifting to offering multi-channel distribution amid launching new websites and integrating acquired business. Rather, like Restoration Hardware Holdings Inc (NYSE:RH), it offers some upside from improvements in operational efficiency, but on the downside, it also has a lot more specific competitive activity (Amazon et al) potentially targeting its revenue base while its growth has been less than stellar in recent times.

The bottom line

In conclusion, I think momentum is with the sector and it is a favorable time to be invested in it. Analysts will likely raise full year estimates so the top end of existing company guidance at $1.37 looks beatable. At least I would hope so, because at the current price, it puts it on a forward evaluation of 37 times earnings.

It’s not the sort of stock or evaluation that I would chase, but we have all seen how some stocks can perform when momentum is behind them and they are raising guidance. Don’t be surprised to see this stock higher by the year end, but be prepared for some significant downside if it misses any numbers and the growth story loses its luster.

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The article Plenty of Growth Drivers for This Housing Play originally appeared on Fool.com and is written by Lee Samaha.

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