What’s Next After A 40% Dip in RH Stock?

A stunning 40% year-to-date decline has turned RH stock (NYSE:RH) into one of the hardest-hit names in luxury retail this year. For a company once valued like a premium growth stock at 25–30x forward earnings, RH now trades at nearly half that—closer to 15x projected profits. The collapse in its valuation multiple reflects a reset in investor expectations following weaker results earlier this year, a soft luxury housing backdrop, and concerns about leverage.

In Q1 FY2025 (quarter ended May 3), RH delivered $814 million in revenue, up 12% year over year, and adjusted EPS of $0.13—well above consensus expectations for a loss. Management reaffirmed full-year guidance, targeting 10%–13% revenue growth, operating margins of 14%–15%, EBITDA margins of 20%–21%, and free cash flow of $250–$350 million. Q2 is projected to build on that momentum, with 8%–10% revenue growth and margin improvement driven by pricing power, mix, and cost initiatives. For a stock punished as if its business were in decline, RH’s results suggest otherwise. Separately see ‘Buy Wheaton Precious Metals Stock At $93?’ But no matter how attractive, investing in a single stock carries high risk. Trefis High Quality Portfolio is designed to reduce stock-specific risk while giving upside exposure.

Photo by Lisaphotos195 on Pixabay

Valuation Reset: From Premium to Discount

For most of the last five years, RH commanded a valuation premium, trading between 25x and 30x forward earnings thanks to rapid revenue growth and expanding margins. That multiple has now collapsed to 12–15x forward earnings, placing RH at a discount to both its own history and to peers such as Williams-Sonoma. The market is clearly discounting the risk of prolonged housing weakness, execution missteps, and RH’s elevated leverage after years of aggressive buybacks.

The opportunity lies in mean reversion. If RH can consistently deliver its 20%+ EBITDA margin target and sustain strong cash flow, even a re-rating to the mid-teens P/E could unlock substantial upside. For long-term investors, the current discount represents an entry point into a luxury brand with structural growth optionality.

Building a Lifestyle Brand Beyond Furniture

RH’s vision extends far beyond traditional furniture retail. The company continues to expand its immersive “Design Galleries,” with recent openings in Montreal and Oklahoma City, and is scaling internationally in Europe. Future launches such as Couture, Bespoke, Atelier, hospitality concepts, and RH Residences aim to position the brand as a global luxury lifestyle ecosystem. These initiatives broaden RH’s addressable market and, if executed well, can drive higher margins and more durable growth than furniture sales alone.

The Investor Takeaway

The investment case in RH now hinges on three levers: the housing cycle, execution of its expansion strategy, and balance-sheet discipline. Should mortgage rates ease and housing turnover recover, RH’s high-ticket categories could rebound strongly. If management delivers on its ambitious growth targets while keeping leverage in check, the stock could see a sharp multiple expansion from today’s depressed levels.

At just 15x forward earnings, RH trades as if its best days are behind it. But if the company executes on its margin and cash flow goals while steadily building its luxury lifestyle platform, the current reset may ultimately prove to be a rare buying opportunity for patient investors.

You could explore the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors. Why is that? The quarterly rebalanced mix of large-, mid- and small-cap RV Portfolio stocks provided a responsive way to make the most of upbeat market conditions while limiting losses when markets head south, as detailed in RV Portfolio performance metrics.