by Ian Harvey
September 08, 2017
RH (NYSE:RH)(Restoration Hardware)
Here is an overview of Restoration Hardware winning options trade after reporting earnings. This options trade was recommended on Monday, September 04, 2017 in the article “Earnings Predictions for the Week Beginning September 04, 2017”, with the company reporting on Wednesday, September 06, after the market closed; producing great potential profits within a very short period of executing the trade.
The Recommendation……from “Earnings Predictions for the Week Beginning September 04, 2017”
RH (NYSE:RH)(Restoration Hardware)-- Analysts forecast earnings of $0.47 per share, up from $0.44 during the same period last year, on revenue of $612.71 million and the Earnings Whisper number is $0.49 per share. The stock has been a top performer during the year, but shares are currently in a downward trend. Despite the recent losses, the stock is still up 48.3% year to date.
Consensus estimates are for year-over-year earnings growth of 23.68% with revenue increasing by 12.76%. Short interest has decreased by 28.4% since the company's last earnings release while the stock has drifted higher by 9.8% from its open following the earnings release to be 9.0% above its 200 day moving average of $44.51. Overall earnings estimates have been revised higher since the company's last earnings release.
Option trade to consider: Buy the RH OCT 20 2017 50.000 CALL at approximately $3.40.
This certainly wasn't your average second-quarter report; RH's top-line revenue jumped 13% compared to the prior year and its adjusted net income checked in at $19.7 million compared to the prior year's $17.9 million. On the bottom line, its adjusted earnings per share jumped to $0.65 was far above the prior year's $0.44 per share and higher than estimates calling for $0.47 per share.
Another factor fueling the short squeeze was a management comment that it expects to generate approximately $400 million of free cash flow for the year, which alleviates some fear of its leveraged balance sheet.
Also, RH has been growing its membership model, RH Members Program, which has boosted sales, and has been reducing promotions in stores.
"We believe that membership has eliminated the frantic buying patterns and associated returns, exchanges, and canceled orders that are the result of a chaotic promotional model," CEO Gary Friedman said in a statement.
As well, RH freshened its store fleet, and has created "Design Galleries" offering food and beverages for purchase.
The furniture retailer's "against the grain strategy" is paying off, Gordon Haskett analyst Chuck Grom wrote in a note to clients. In fact, Grom said he believes RH's higher guidance "looks a touch conservative."
With a more "classic focus" in stores, moving away from contemporary, "the [RH] model now has a tremendous amount of torque that could drive significant EPS upside, particularly if sales come in better than expected," Grom said.
He has raised his price target on RH shares to $72.
RH struggled in 2016, but it appears that its business is materially improving.
The bottom line is that margins improved, fixed some of its inventory woes, and in general things are moving in the right direction.
"While 2016 was a year of transformation and transition, 2017 will be a year of execution, architecture, and cash at RH," Friedman said. "The transformation of our real estate has the potential to double our retail sales in every market."
Shares of RH punished bearish short-sellers yesterday morning, gaining a staggering 40% as of 11:30 a.m. EDT after the company reported second-quarter results. With a further session rise of 43 percent, it was trading at $70.69 on Thursday afternoon.
With Thursday's tremendous gains, RH shares have climbed a whopping 126 percent in 2017.
By close of trading the stock was sitting at $71.54, up +$22.12 or 44.76%; and in early morning trading Friday was up another 2.04% at $73.00.
So, for traders who managed to execute this trade recommended by Stock Options Made Easy; a nice tidy potential profit of 577% within a couple of days.
ACTION TO TAKE…….
As you would have by now realized, many of our trades are based on earnings predictions. This is not to say all trades recommended to members follow this pattern, but during earnings season this strategy has been very profitable.
Our approach is to predict whether a company will beat or miss estimates, whether the stock will appreciate or depreciate as a result and what strategies investors and traders can use. This type of prediction is based on thorough investigation and fundamentally based research, and the results have been very exceptional.Our proven track record says it all!!
Members of Stock Options Made Easy are provided with an extensive reason as to which direction a stock will move after earnings, followed up by a recommended options trade.
What To Do Now…….
If you interested in being part of this profitable action just click here……