Expensively valued compared to its bigger peers
Restoration Hardware seems to be too hot to touch with its extremely high valuation. At $68.30 per share, Restoration Hardware is worth around $2.6 billion on the market. The market values the company at as high as 51.7 times its trailing EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). Compared to its peers Macy’s, Inc. (NYSE:M) and Williams-Sonoma, Inc. (NYSE:WSM), Restoration Hardware Holdings Inc (NYSE:RH) is extremely expensive.
Macy’s is trading at around $48.80 per share, with a total market cap of $18.70 billion. The market values Macy’s at only 6.3 times its trailing EBITDA. In the first quarter of 2013, Macy’s delivered good growth in its operating performance. The net income increased 20% to $217 million, but EPS had a higher growth of more than 30.2% to $0.56 per share. The higher growth in EPS was due to the company’s share buybacks. In the near future, under Terry Lundgren’s leadership, Macy’s will keep pursing “myriad new growth opportunities” within its M.O.M strategies (My Macy’s, Omnichannel and Magic Selling).
William-Sonoma, at $56.20 per share, is worth more than $5.5 billion on the market. The company has a higher valuation than Macy’s, at 9.1 times its trailing EBITDA. William-Sonoma is the multi-channel specialty retailer, operating 560 stores in 44 states, Puerto Rico and 21 stores in Canada under several brands including William-Sonoma, Pottery Barn, Rejuvenation and West Elm. The first quarter 2013 was considered the best first quarter in the company’s history, beating the estimates for both operating margin and diluted EPS. Its net revenue experienced a year-over-year growth of 8.6% to $888 million, while the diluted EPS jumped as high as 33% to $0.40. Because of the impressive first quarter results, the company confidently raised its full year guidance. While the revenue was estimated to stay in the range of $4.22 billion to $4.30 billion, its non-GAAP EPS might reach $2.67-$2.77 per share.
Among the three companies, William-Sonoma offers shareholders the juiciest dividend yield at 2.2%. Macy’s ranked second with a bit lower dividend yield at 2.1%. However, Macy’s seems to be more conservative with its dividend policy, with the lower payout ratio at 24%. The payout ratio of William-Sonoma is higher, at 37%. Restoration Hardware Holdings Inc (NYSE:RH) does not pay any dividends.
My Foolish take
Investors might be bearish on Restoration Hardware Holdings Inc (NYSE:RH)’s huge insider sales. On May 20, Chairman Emeritus Gary Friedman sold nearly $40 million worth of shares in the company. Its CEO followed the Chairman Emeritus, selling nearly $16.5 million worth of shares. So did the COO and the CFO. Consequently, despite the current high growth, I do not think Restoration Hardware is a good buy at its current trading price due to extremely high valuation, no dividend payment, and significant insider sales.
Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Williams-Sonoma.
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